Financial Advice v Pension Guidance

Published / Last Updated on 08/10/2014

Video explains financial advice versus financial and pension guidance, following the Budget 2014 where Government confirmed it would arrange for free pension guidance. We explain the difference between advice and guidance.


“Hello there. This is a follow-up video to Budget 2014, which announced the government providing “free financial guidance”. Free financial guidance for our pensions, you have probably seen if you’ve got workplace pensions and things like that the starting work at your employer starting to pay into a pension with you; then free pension guidance.

So I wanted to cover this subject of ‘financial advice versus Guidance. At the time shooting a video we’re in October 2014 and still the government and the regulator are, broadly speaking, sitting on the fence and not really offering the true meaning of what guidance is versus Financial Advice. The regulator has published a consultation document and there are snippets of information in there, but I thought I would shoot a quick video just explaining financial advice versus financial guidance.

So, to give financial advice, new rules started a couple of years ago where your financial adviser must have at least what’s called a level 4 qualification, so an advanced financial planning diploma of some sort. They may have moved on and become Chartered, like I am, I am a Chartered Financial Planner which is a level 6, effectively the equivalent of a degree in financial planning.

But financial advisers must be highly qualified now and if you are receiving advice they must quote you a fee. Now that fee could in round monetary terms, like we quote you, we quote all of our clients specific set fees or alternatively some financial advisers may quote in percentage terms or indeed hourly rates, some may quote on.

So, financial advice: qualified adviser, must quote a fee to you before the work is done and then in terms of the advice itself, the advice must be suitable for your needs, we must assess your needs, we would then advise you, we then become liable for that advice and currently is no time limit on how long we are liable for the advice that we give. Technically, we’re liable for life as it stands at the moment and you have protection. You took action based upon advice, if the advice was negligent or faulty then you have full rights to complain. You have the protection of the Financial Ombudsman Service, which is an independent arbitration service if there are disputes. You then ultimately have the protection of the financial advisers professional indemnity insurance and also if something went dramatically wrong with the company, there is the Financial Services Compensation Scheme. So that's financial advice.

Let’s now talk about guidance. Guidance, guidance isn't advice. If you're speaking to somebody who is giving you ‘guidance’, they don't have to be qualified. It’s ‘the blind leading the blind’ and I am sorry you making a not be as blind as the person that’s trying to guide you, you may be quite experienced in making financial decisions but this is really ‘the blind leading the blind’. Somebody, who doesn't have to be qualified, guiding you on financial matters and there is no advice. Guidance means no advice, guidance means they can say: ‘you need a pension’ but what they can't say is: ‘you need a personal pension or you need a self-invested pension or you need an executive pension or a stakeholder pension or a workplace pension’. Supposedly, because once you start naming products that is deemed as ‘advice’. Once we start naming funds or insurance companies or investment companies, naming companies and naming funds that is advice. For guidance, you are not supposed to be to talk about anything like that. In terms of liability there’s no liability where somebody is ‘guiding you’.

So, in a nutshell, financial advice: highly qualified advisers, must quote a fee to you, they’re liable for it, there is protection. Guidance: don't necessarily need to be qualified to talk to you, so they may not know what talking about, I would hope they would, but you know what's coming and they don't necessarily have to name products for you, they’re just trying to steer you in the right direction. But, they potentially, because there is no advice being given, do you know you can still take full commission and not have to charge a fee when no advice is given? It’s just a disaster waiting to happen.

So be very, very careful and be very specific when these new services start to materialise: Are you getting financial advice or are you getting guidance? Am I being quoted are set for doing my work or is there commission being paid or not? How can you afford to give me guidance for free?

[So] a lot going on, I appreciate the government is looking to put in some fairly simplistic guidance for workplace pensions but this is going to set a precedent for companies offering guidance on other types of products and services. So just be aware financial advice versus financial guidance. Thanks very much for watching.”

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