For example, while giving ‘generic advice’ you’d be safe from complaints over the performance of a particular product, if the type of product is wrong in principle you’d still be liable for the ‘advice’ to go down that route.Īs for the remuneration of non-advised sales, as it stands an adviser can continue to receive commission on such business. Non-advised, given properly, obviously involves less liability than an advised sale, but is not without some element of risk. You can also give generic advice that a client should buy a certain type of product or take out a particular type of policy, as long as you do not mention a specific provider or product option. So what can you do? Well, you can give general information, as long as you ensure the client is aware of the myriad product solutions available and is able to assess the merits and drawbacks of each.
These are often cited as being a way of allowing clients to come to a decision independently based on their requirements, but the FCA board minutes specifically mentioned processes involving decision trees when highlighting models that could be “misconstrued” as advice. This means you don’t have to give a specific recommendation to be classed as giving advice, you can – in the FCA’s words – “inadvertently” give advice by explaining why one option might be well suited, or by simply answering questions from a client such as ‘what do you think?’ or ‘which one is best?’.Īnother potential problem area is ‘decision trees’. The FCA states that a characteristic of an ‘advised’ sale is explaining why a particular product or provider would meet the customer’s demands and needs. Perhaps, though, it’s not as black and white as that. In principle, then, if you do not give a recommendation or opinion on which of a range of products is best suited to the client, the process would be non-advised. The FCA defines a ‘non-advised’ sale as giving objective information to a potential customer, but leaving them to decide how they wish to proceed. So what checks and due diligence must advisers perform when undertaking non-advised or exec-only business to ensure they do not fall foul of the rules and open themselves up to claims that they have actually provided advice (and potentially not done so adequately). In addition, the regulator questioned whether the continuation of commission payments for non-advised retail investment sales created potential risks. In particular, there was consensus on the need for a clear distinction between advised and non-advised sales, particularly where non-advised models could be “misconstrued” as advice. The Financial Conduct Authority’s June board minutes revealed concern over ‘non-advised’. In theory it is nice and simple: if you make a recommendation, you are giving advice and must jump through all the relevant regulatory hoops this entails if you do not make a recommendation and either just give advice or process a request, you have not given advice.īut how easy is to stray from a non-advised or execution-only sale to giving regulated advice? Too easy, according to the watchdog. There are two alternatives to advice: non-advised and execution-only.
When is a non-advised sale legitimately not advice?
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