The current divide serves these people poorly as the typical consumer does not have a clue about the meaning of advice and guidance and uses them interchangeably.
In research on consumer explanations of “advice” and “guidance“ prepared by the Financial Advice Working Group for the Treasury and the FCA in 2017 Nicky McCabe, chair of the advice and guidance sub-group at the Financial Advice Working Group for the FCA said: “Our research told us what consumers think about concepts of 'advice' and 'guidance' – namely that they are confusing and esoteric terms and don’t instinctively fit into the broad range of ways in which consumers look for help with their financial decisions."
The situation is even more opaque today. Frank and blunt advice is rare. The consumer also suffers because the regulator’s "perimeter" guidance essentially prevents firms providing information or help to customers that might influence their decision.
Tom Selby, head of retirement policy, AJ Bell, explains: “Clearly any communication which is personal in nature and based on something a firm knows about the customer could influence their decision, and therefore under the current rules and guidance could be deemed as being a personal recommendation.”
Selby continues: “Most firms will not go close to the advice/guidance boundary because of the risk of a [Financial Ombudsman Service] claim – a risk that is exacerbated by the existence of claims management companies who would likely try to bring significant group actions if a ruling found against a provider.”
He points out: “Whether or not there have been claims of this nature is immaterial – it is the risk that most providers have no tolerance for.
"And it would potentially only take one successful claim, exacerbated by an aggressive claims management company, to leave a provider on the hook for significant liabilities.”
Yet, squaring the advice/guidance circle bring huge benefits. Carried out prudently, it opens the door to specialised knowledge for all, previously denied them by cost and over-cautious regulation.
Another adviser, Alan Moran, chief commercial officer, Punter Southall Aspire, says hybrid advice could encourage competition between providers. He says: “This would lower charges, focus technology and we would – or ought – to see a real step forward in how the industry talks about this for even more people to understand more clearly.”
Consumers bamboozled
Since freedom and choice, the binary annuity choice has become myriad options, and the consumer is often bamboozled.
Yet Jenny Davidson, commercial proposition director at Quilter, says: “Each choice an individual makes along the way becomes critical, and the answers themselves are less obvious. How do you best invest your savings? Where is the best place for a rainy day fund? How do you want to take income in the future and what happens to your assets when you die?”
