The Duck test implies that an unknown subject can be identified by observing that subjects habitual characteristics. One that is highly relevant, one would imagine to the ongoing debate about when is financial advice financial advice?
In today’s final guidance 15-01, the FCA has clarified its position on what compromises as a personal recommendation and the different forms of financial advice. In other words they’re asking you to get your ducks in order…
What is clear is that the context for advice is that it must relate to a specific investment and must be given to an investor or potential investor, or an agent for an investor. This advice must also relate to the merits of buying, selling, subscribing for or underwriting the investment. In essence familiarise yourself with paragraph 3.19: the MiFID investment advice tests.
Suitability is the caveat to personal recommendations covering the customer personal, financial information, knowledge, experience and investment objectives.
All other non-product specific advice is not regulated. Yet it will be regulated if given in relation to a retail investment. This is particularly important to web-based tools aimed to steer customer decision-making through budgeting and general financial planning tools.
We then have to consider the propositions used:
With the growth of online propositions and decision trees, we then have paragraph 3.19 to thank. If the direct proposition or decision tree offers (what is perceived as) assistance in product choice then it is regulated advice, if no assessment, judgment is given and the consumer is left to make his or her own choice, then it’s non-regulated.
Thus guiding someone through a decision tree with no product recommendation and the person making their own decision (and documenting all of this off course) would not normally be seen as ‘advising on investments’.
The litmus test is, ‘has a personal recommendation been provided in relation to a specific investment’. If it has then its advice, of not then it’s generic.
Information, Guidance and Advice
Giving facts is just that, for example investment price or performance or terms and conditions. So it’s information if the consumer is left to his or her own devises.
Online tools in particular showcase guidance in that they go a little further and provide generic advice (don’t be confused) in that it will point the way to a suitable route or options but not a specific product.
As we have seen advice is a judgment-based view based on the buying or selling of an investment.
So in essence we need to assess what is actually being done at the time of customer engagement. This really means placing careful boundaries around the propositions and ensuring that we know the context in which consumers make their choices.
As the poet James Whitcomb Riley wrote:
“When I see a bird that walks like a duck and swims like a duck and quacks like a duck, I call that bird a duck”.