All financial services firms should be commanded to use a new set of explanations for advice and guidance, which should be displayed side-by-side.

That is according to the Financial Advice Working Group, which was set up following the Financial Advice Market Review last year.

This morning, the group outlined its proposals.

After research, it has strongly recommended that rather than changing the terms ‘advice’ and ‘guidance’, the two should be presented next to each other to consumers, with a clear, standardised explanation of each.

The report stated: “The consumer research consistently showed that providing clear, consumer-friendly explanations for “advice” and “guidance” will make the most difference to consumer understanding of the services, and that this far exceeds the benefit of changing the terms themselves.”

Nicky McCabe, chair of the Advice & Guidance Sub-Group Financial Advice Working Group, said: “Our research told us what consumers think about concepts of advice and guidance – namely that they are confusing and esoteric terms and don’t instinctively fit into the broad range of ways in which consumers look for help with their financial decisions.

“Yet once clear explanations are used, written in straightforward language, and with the two services presented side-by-side, “advice” and “guidance” can be quickly demystified in a way that cannot be achieved by simply changing the terms.”

She said: “Making a real difference to consumers’ understanding of “advice” and “guidance” will require widespread adoption of the explanations – they need to become the de facto standard in both regulated and unregulated parts of the industry.

“This will need both carrot and stick to be achieved and I am encouraged by the initial feedback from the regulated industry to the suggested way forward.”

The group proposed using the explanations as set out in the table below.

It recommended that:

•  In order to drive the widest adoption possible, entities authorised and regulated by the FCA should be mandated to use the explanations. In addition, the explanations should be used by Government-backed guidance services. For other non-regulated guidance bodies and other market commentators (e.g. press), the use of the explanations should be encouraged.
•  The explanations of “advice” and guidance” should be displayed side-by-side to allow comparison between the two services by consumers.
•  Use of the explanations by providers should follow a clear set of principles so that they are easily accessible to all consumers, and positioned at an early stage of the customer journey so that consumers know which service (“advice” or guidance”) they are receiving. 

FAMR was launched in August 2015 to examine how financial advice could work better for consumers.

Ms McCabe warned: “This report only looks at one element of the FAMR challenge. On their own, new explanations of “advice” and guidance” will not close the advice gap” identified by FAMR – they need to be accompanied by a range of other changes to provide the support to consumers that is currently lacking.”