Understanding Generic Advice: Financial Planning without Specific Investment Recommendations

Generic advice is a term the UK Financial Conduct Authority (FCA) uses to refer to something that is advice rather than mere information, but which is not regulated by them because, although it relates to investments, it is not about the merits of buying or selling a particular investment.

The FCA will not regulate generic advice, as it is not on the merits of buying, selling, subscribing for or underwriting a particular investment. An example of generic advice may include financial planning.

We describe financial planning that is generic advice as generic financial planning.

Although giving generic advice is generally not an FCA-regulated activity, if it is given in the course of or in preparation for an FCA-regulated activity it can form part of that regulated activity.

For example, if a firm gives generic advice (for instance, financial planning) and then goes on to identify a particular investment, the generic advice will form part of the regulated activity of advising on investments.

Another example is a firm that provides generic advice to a customer or a potential customer prior to or in the course of carrying on the regulated activity of arranging (bringing about) deals in investments for the customer; that generic advice is part of the regulated activity of arranging (bringing about) deals in investments.

Further information

There is a wide spectrum of advice that firms provide to customers:

• generic advice (setting out in a neutral manner the facts relating to investments and services with no spin)
• product-related advice referred to in the consultation paper as “FCA-regulated advice” (setting out in a selective and judgemental manner the advantages and disadvantages of a particular investment or service)
• personal recommendation (based on the particular needs and circumstances of the investor).

Advice

Advising a person is a regulated activity under the Financial Services and Markets Act 2000 (FSMA) if the advice:

• Is given to a person in his capacity as an investor or as agent for an investor.
• Is on the merits of his buying, selling subscribing for or underwriting a particular investment (Article 53 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 as amended (RAO))

Generic advice does not constitute investment advice as defined in article 53 of the RAO but product-related advice and personal recommendations do. The difference is between a generic statement, such as 'buy technology shares', which is not a regulated activity and advice on a particular investment, such as 'buy ABC PLC shares', which is a regulated activity. This is the case whether the advice is express, in writing, or through a software program into which an investor has input data where the system generates advice.

For the advice to be regulated, it must involve an element of opinion or judgement on the part of the adviser. Regulated advice involves recommending a course of action or making a judgement on the merits of exercising a right, such as to buy or sell. Generally speaking, giving someone information and nothing more is not a regulated activity. Giving facts about the performance of investments or the price of investments does not constitute regulated advice if the investor is left to exercise his own opinion on the action to take.

The circumstances in which the advice is provided can make it a regulated activity. Presenting advice in a selective manner so that it influences or persuades an investor may amount to a regulated activity. So, a financial plan will not generally be regarded as providing regulated advice but may do so if it has been designed to lead an investor to a particular investment or service.

Any information which seeks to influence or persuade an investor to buy or sell an investment may also amount to a financial promotion.

The advice must also be given to an investor or the agent of an investor, so advice given to an independent financial adviser (IFA) or tax adviser would not be a regulated activity on the basis that the IFA or tax adviser would not be an investor. But advice given to, for example, an asset manager would constitute advice to the extent that the asset manager is an agent of the investor.

Advice requires an element of opinion on the part of the adviser. In effect, it is a recommendation as to a course of action. Information, on the other hand, involves statements of fact or figures.

In general terms, simply giving information without making any comment or value judgment on its relevance to an investor's decisions is not advice.

The provision of purely factual information does not become regulated advice merely because it feeds into the customer’s own decision-making process and is taken into account by them.

Regulated advice includes any communication with the customer which, in the particular context in which it is given, goes beyond the mere provision of information and is objectively likely to influence the customer’s decision whether or not to buy or sell.

A key to the giving of advice is that the information:

• Is either accompanied by a comment or value judgment on the relevance of that information to the customer’s investment decision; or
• Is itself the product of a process of selection involving a value judgment so that the information will tend to influence the decision.

The advice can still be regulated advice if the person receiving the advice:

• is free to follow or disregard the advice; or
• may receive further advice from another person (such as their usual financial adviser) before making a final decision.

Information may often involve:

• listings of share and unit prices; or
• company news or announcements; or
• an explanation of the terms and conditions of an investment; or
• a comparison of the benefits and risks of one investment as compared to another; or
• league tables showing the performance of investments of a particular kind against set published criteria; or
• details of directors’ dealings in the shares of their own companies; or
• alerting persons to the happening of certain events (for example, XYZ shares reaching a certain price).

However, such information may take on the nature of advice if the circumstances in which it is provided give it the force of a recommendation.

For example:

• A person may offer to provide information on directors’ dealings on the basis that, in his opinion, were directors to buy or sell, investors would do well to follow suit;
• A person may offer to tell a client when certain shares reach a certain value (which would be advice if the person providing the information has offered to do so on the basis that the price of the shares means that it is a good time to buy or sell them); and
• A person may provide information on a selected, rather than balanced, basis which would tend to influence the decision of the recipient.

A key question is whether an impartial observer, with due regard to the regulatory regime and guidance, context, timing and what passed between the parties, would conclude that what the adviser says could reasonably have been understood by the customer as advice.

An explicit recommendation to buy or sell is likely to be advice. However, something falling short of an explicit recommendation can be advice too. Any significant element of evaluation, value judgment or persuasion is likely to mean that advice is being given.

A person can give advice without saying (or implying) categorically that the customer should invest. The adviser does not have to offer a definitive recommendation as to whether the customer should go ahead.

For example, saying the following can still be advice:

This investment is a very good buy, but it is your decision whether or not to buy; or

This investment is a very good buy, but I am going to leave it to you to decide because I don’t know your up-to-date financial position.

The examples involve advice and not just information; and involve advice on the pros and cons of buying the investment - advice must relate to the merits of buying or selling a particular investment.

One factor in deciding whether what was said by an adviser in a particular situation did or did not amount to advice is to look at the inquiry to which the adviser was responding. If an investor asks for a recommendation, any response will likely be considered advice.

On the other hand, if a customer makes a purely factual inquiry, it may be the case that a reply which provides the relevant factual information is no more than that. In this case, it is relevant whether the adviser makes it clear that it does not give advice; or whether the adviser runs an advisory business.