UK to change meaning of 'investment advice'

Chris Hamblin

2 March 2017

For advice to be regulated under article 53, it must:

relate to a relevant investment, which might be a contract of insurance; and
be given to a person in his capacity as an investor or potential investor (or in his capacity as agent for an investor or potential investor); and
relate to the merits of him buying, selling, subscribing for or underwriting the investment (or exercising rights to buy, sell, subscribe for or underwrite such an investment).

MiFID investment advice involves the provision of personal recommendations to a customer, either upon the customer’s request or on the firm’s initiative. It comprises three main elements:

a recommendation must be made to a person in his capacity as an investor or potential investor (or in his capacity as an agent for an investor or personal investor); and
the recommendation must be presented as suitable for the person to whom it is made or based on the investor’s circumstances; and
the recommendation must relate to taking certain steps in respect of a particular investment which is a MiFID financial instrument, namely to buy, sell, subscribe for, exchange, redeem, hold or underwrite a particular financial instrument (or exercise a right to buy, sell, subscribe for, exchange, or redeem a financial instrument).

The main part of the MiFID definition concerns the giving of a personal recommendation, whereas the definition in article 53 is broader and less specific. The Government's Fair and Effective Markets Review has found that firms are limiting the amount of guidance they are giving consumers for fear of inadvertently straying into the provision of regulated advice without meeting the higher regulatory requirements. By stepping back from the regulated advice boundary, the Government thinks, firms are providing less support to consumers and therefore increasing the risk that consumers make unadvised (and potentially bad) investment decisions.

The consultative period will end on or about 24th April. The government will publish an 'impact assessment' before it lays the order before Parliament. Readers can view the policy paper here.