Advice, advice, it's all very nice...

This month’s article begins with Bart Simpson lamenting “you’re damned if you do and you’re damned if you don’t”. How very true! Especially when different rules apply to different people and nobody will tell you straight what the rules are and therefore how you can avoid breaking them.

Don’t know what I’m talking about? Well, let’s start at the beginning by considering the meaning of the term “advice”. The dictionary definition is clear enough: “Advice is guidance or recommendations offered with regard to prudent action”. There’s nothing controversial there.

But we all know that for those working in the regulated financial industry the word “advice” means something quite different and we are all very careful about using it in any context without due care and attention lest the regulator land on us like a ton of bricks with a large fine.

So it is strange to see the new government-run “Money Advice Service”, funded by a levy on regulated financial services firms, using precisely that controversial word in its title.

The service trumpets on its home page to the consumer “If you’re looking for free, clear, unbiased advice to help you manage your money, you’re in the right place”. Yet if you read down to the small print in the Terms and Conditions it insists that the information provided is general and cannot be classed as regulated financial advice because, as a body, it is not regulated by the FSA. It therefore accepts no legal responsibility for the service that it offers.

Only a government-run body could feel secure enough to make so free with a word which is usually associated with punitive fines if it is not supported by a barrage of qualifying definitions.

On the one hand the government flouts normal practice and produces the “Money Advice Service” for consumers, causing a sharp intake of breath from the regulated financial services industry. At the same time it asks its regulator to consult with the industry through the Retail Distribution Review on a proposed simplified regime defining levels of advice.

Does this sound like good news? Perhaps it does, but only if the results of the consultation produce crystal clear definitions to which businesses can adhere without risk of ambiguity (and subsequent fines) and which can be clearly understood by consumers.

My concern is that the new simplified regime may not be prescriptive enough in setting clear boundaries to the ranges which it defines, leading to subjectivity in judgments concerning compliance. Compliance judgments of course always happen after the case, which will make it even more difficult for a beleaguered industry to know whether it is stepping on solid ground or on quicksand.

Take for example the high court ruling today on the banks, which found to their dismay that the regulator was effectively applying new rules retrospectively to previous sales, even though those sales were covered by previous regulatory rules.

I said in an earlier article that the FSA are boosting their income by broadening their reach and looking for new markets to regulate. Now it seems that they are also supplementing this strategy by increasing their fines, including levying fines on firms who follow the government’s lead and are lax in their use of the word “advice”.

Did you know that in the last year the FSA trebled the value of fines it imposed on financial services businesses from £33.1m to £96.7m? This was as a result of an increase in both the number and size of fines, with the average fine up by nearly 50% on the previous year.

In fact the FSA so boosted its income by fines last year that it has been able to reduce slightly the amount that firms will have to pay to fund regulation this year. This is small comfort given that those same firms are having to pay more and more to strengthen their own compliance culture to protect themselves from being turned upside down and shaken until money falls out of their pockets.

So how do we tie all this up? As ever with words of encouragement to play it smart in your businesses and to campaign on the side of sanity and reason. Take care out there and be wary of a government and its regulator that offer clarity when in reality they don’t seem to believe that it applies to themselves.

Perhaps we can close with a parting proverb, with of course many caveats to say that this does not of course refer to regulated financial advice: “The best advice is this:  Don't take advice and don't give advice."