With the advent of pension freedoms, the prevalence of defined contribution pensions and the shift in responsibility to individual employees for making more financial planning decisions to provide for their financial wellbeing, more people than ever now need education and guidance and many more also want and need advice.
The FAMR report recognises the current pension environment means that more people will need guidance and advice when planning for their retirement.
The government has also recently increased the amount of tax-free cash DC pension members can withdraw from their DC pension to pay for advice; raising it from £500 to £1,500 (to be used in 3 separate tax years during a member's lifetime).
However, the distinction between what is guidance and what is advice and who is able to provide these different services has been questioned and the lines have been blurred. So the regulator via consultation has sought to clear these lines and define exactly what is advice and who can provide it.
With the advent of terms such as "robo-advice" and the misnomer of some services, for example the Money Advice Service, neither of which are likely to provide advice, it is easy to see why organisations and individuals are confused about what service they need, what service they are getting and where to find the most suitable providers.
This announcement from HM Treasury this week confirms the definition of advice and who can provide it with the amendment coming into force from 3 January 2018.
The industry and consumers alike are waiting for a similar clarification on guidance.
Government to amend definition of financial advice for regulated firms By Katie Scott HM Treasury is to amend the UK definition of financial advice for regulated firms from 3 January 2018. The government will amend the definition of financial advice for regulated firms so that advice is only given when providing a personal recommendation. The current wider definition for financial advice that is stated in the Regulated Activities Order (RAO) will remain in place for unregulated firms. This defines advice as ‘advising on investments’. The change will mean that most regulated firms will be exempt from the need to hold permissions to advise on investments unless they are providing a personal recommendation.