UK Retail Investment Space and The Difference Between General Advice and Guidance

There is always a confusion among the people in the United Kingdom regarding the difference between Advice and Guidance in the retail investment space. This lack of understanding often leads to people being unaware of what kind of protection is available to them if something goes wrong in the services they receive. Improving the consumer's understandings between the two will help them navigate through the myriad of service providers, and the nature, implications and consequences of the services availed.

Investing one’s hard-earned money is a very big decision. Most of the time, people who wish to save and build a corpus for their future needs, turn to stock markets and other such investment avenues. However, in order to avoid from falling into an unfortunate pitfall and lose all his money he needs to have a thorough understanding of how financial markets work, and what are the different financial instruments that trade therein. To assist potential investors and also for people who have been investing for long, there are businesses and other not for profit organisations who provide the information, advice, guidance, and a host of other services which could be useful in their decision-making process.

However, most of the people while availing these services do not know if there is some disparity in these services being offered or what their legal rights are if they are not satisfied with the services they receive. The Financial Conducts Authority (FCA) provides some basic definitions and explanations regarding some of the keywords like Advice and Guidance so that the general public is more aware of it when they go to avail these services.

Here in this article we will give you a general overview of the key differences between Advice and Guidance providing firms.

Difference between Advice and Guidance services providing firms

Advice providing firm – An ‘Advice’ means a recommendation to buy or sell a particular investment option. The nature of such a recommendation is that it is personal to the reader. It will be based on the specific circumstances and financial objectives of the investor. The investor may choose to either act or not to act on that advise. However, the most important aspect of financial advice providing firm is that it must be authorised by the FCA before it can provide this kind of advice.

Guidance providing firm - The term ‘Guidance’ is a much broader concept and includes more general information about financial products. It can include information about different types of investments or general principles to consider when investing. Guidance can aid you in understanding the various investment options before you decide for yourself how to invest your money. Some people use it to narrow down their options before seeking advice. Most of the free educational materials available on different websites come under this category. Public bodies such as Pension Wise, the Money Advice Service as well as the Pensions Advisory Service, also offer guidance. These public bodies do not sell financial products and services but provide general, free, independent, and impartial financial information.

The FCA, however, provides in more specific terms, the below six-pointers by which an investor may identify as to what constitutes Advice and what constitutes Guidance.

(Source: FCA Release)

It is, however, always recommended that a customer should seek clarification from the firm about the nature of service before entering into an agreement. Remember, general advice does not consider your individual investment, financial situation, objectives, or needs. You should therefore analyse whether the advice is appropriate to your investment requirements before acting upon it. You may seek further assistance from a stockbroker or other financial professional as necessary before acting on any such advice.