Can a random stranger give financial advice?

[trajan]

Straighten me out on this one, folks.

A man and some friend on a train from Dublin to Kerry, converse inter alia on their financial investments, comparative performance of the latter and so on.
When the friend goes to the refreshments' carriage for some tea, a bloke in a seat across the aisle from them, comes across to the man and - in reference to some of the better-performing investments that they had been discussing and to which he'd been eavesdropping - asks the man if he would advise him to buy into such investments.

Is the man breaking the law or some FRA regulation if he advises a member of the public on such a financial investment (say an investment ~ €10,000 is involved) ?

 

[trajan]

(The man in question who is asked for advice is not QFA or CFP, of course. )

 

[Brendan Burgess]

No, he is not.

The Central Bank regulates only financial advice given in a professional capacity for a fee.

Otherwise, the conversation between the friends on the train or the discussions any night in a pub would be illegal.

Brendan

 

[trajan]

Hmmm.
Professional capacity does not exclude unpaid advice, surely ?
Otherwise pro bono work would never be done responsibly, as no liability would result. And charities seeking free advice on investment of surpluses would have to be rebuffed and told to pay if they wanted to benefit from professional liability insurance.

So professional capacity must relate to situations where the advising party has declared (or strongly implied without expressly declaring so) that they are properly qualified professional financial advisers.
And since the man on the train did not say so, he's in the clear.

The thrust of the whole QFA thing - the spirit behind the law, so to speak - had to be to remove bad financial advice from wherever it came from.
Yet all we have achieved is to apply a minimum qualification (QFA) upon those publicly describing themselves as financial advisers.
By avoiding publicly describing oneself as a financial adviser and not applying a fee (not sure if a quid pro quo is legally equivalent to a fee), cowboy advisers may still slant around getting socially gullible people to misinvest their hard-earned money.

 

[Bronte]

Your question might equally apply to any of us on here who ever gave financial advice.

By the way, what is this wonderful 10k investment that has the stranger on the train so interested.

 

[LDFerguson]

By avoiding publicly describing oneself as a financial adviser and not applying a fee (not sure if a quid pro quo is legally equivalent to a fee), cowboy advisers may still slant around getting socially gullible people to misinvest their hard-earned money.

In this scenario, your cowboy adviser will still, presumably, want to get paid in some form. How does s/he earn a living?

 

[trajan]

@Bronte: But only a small number of us here (certainly not me!) are real FAs. And of those, I think BB would not allow specific - as opposed to general - advice to be given to any other member. It would be more a case of something like: "@CorkJimmy - Best thing for your kids' college fees is what's know as an education fund, so ask your local FA about these."
The 10 grand is only an indicator of serious money (for most of us, that is) being involved. My story is 100% hypothetical, not a real actual event - though you would hear a lot of similar scenes on CIE journeys, life stories, marriage stories, etc. And I have no bumper scheme for your 10k. Keep it handy.

@LDF: If they were sneaky enough, they could have a deal in place with the investment/policy provider such that part of the commission on every named sucker quoting them as their referrer that takes out that investment would be kicked back to some account to their benefit. I suppose that in this day and age this might include investments signed up for online.
Of course, some people are not (mis-)advising for direct monetary gain.
They may have a bad case of CCC (county councillor's complex) and like to be at the centre of as much as possible for as many as possible.

But we are getting away from the main point here.
It's one thing to advise friends and family - even at times forcefully so if they are on a dangerous road and in no position to lose - on matters where you'd have experience yourself. You might almost call this a family or human obligation.
It's entirely another to extend this practice to cover anyone naive enough to raise personal finance matters with us. Here the response ought to be simply "I'm not equipped for that one, Mr X. Go see a good FA."

 

[T McGibney]

It's one thing to advise friends and family - even at times forcefully so if they are on a dangerous road and in no position to lose - on matters where you'd have experience yourself. You might almost call this a family or human obligation.
It's entirely another to extend this practice to cover anyone naive enough to raise personal finance matters with us. Here the response ought to be simply "I'm not equipped for that one, Mr X. Go see a good FA."

You can't outlaw pub talk. The numbers of people I've had to disabuse of "tax advice" they had picked up on buses and barstools is legion.

 

[llgon]

If they were sneaky enough, they could have a deal in place with the investment/policy provider such that part of the commission on every named sucker quoting them as their referrer that takes out that investment would be kicked back to some account to their benefit.

Such a scenario would certainly be subject to the law and regulations so it's not really relevant when you are discussing people giving genuine informal unpaid financial advice.

 

[LDFerguson]

@LDF: If they were sneaky enough, they could have a deal in place with the investment/policy provider such that part of the commission on every named sucker quoting them as their referrer that takes out that investment would be kicked back to some account to their benefit. I suppose that in this day and age this might include investments signed up for online.
Of course, some people are not (mis-)advising for direct monetary gain.
They may have a bad case of CCC (county councillor's complex) and like to be at the centre of as much as possible for as many as possible.

In reality I can't see any regulated investment product producer being terribly interested in getting involved in some sort of shady scheme to pay commissions secretly to an unregulated adviser. Such a scheme would put their entire business at risk of being closed down by the regulator and why would they want to risk that when they can get plenty of business through regulated intermediaries?

That said, there are still a small number of unregulated investment products out there, that fall outside the scope of the regulations. Direct investment in property syndicates etc. It is permissible for an anyone to sell these for commission and remain entirely within the law.

I agree with your point about CCC and people who simply like to dole out advice for the inflation of their own ego, or perhaps through some misguided sense that they're doing good. Very difficult to legislate for that as it occurs in all walks of life and not just financial advice. How many times have I listened to idle chatter about how buying a property in a particular location is a fantastic idea as an investment and couldn't possibly go wrong? Or as Tommy McGibney has said above, the barstool tax advisor? Dangerous but virtually impossible to legislate for.

 

[trajan]

@tmcg: By giving the stock advice:

"See a good FA, JJ. There's too much at stake for someone like me to be advising you. I had to do the same thing myself. 'Tis worth it all in the end."

The only problem with this is when the person approached for advice is an FA and who are approached by family relatives, neighbours or socially at the beach or after plays and so on.
Here the desired approach should be never have relations, friends or neighbours as clients or worse as pseudoclients, even if paying for it.
Sometimes it may not be possible to avoid getting involved - as a number of other FAs might have given the person concerned the same wrong advice. If the situation is urgent, an FA might have to get involved just to save the day. But afterwards the person should be redirected to another FA who can and will provide the right advice. The stickiest situation of all is where a locality just does not not have FAs competent or honest enough to look after vulnerable clients. And where there may be doubt as to whether informing the regulator or professional body will do anything other than reinforce the rot.
In that situation, someone somehow has to blow a whistle.

 

[trajan]

@llgon: I'm not talking about direct properly accounted commissions. Don't ask me how, but there always seems to be ways to reward (through multiple middlemen and vague 'fees' for 'services' of variable scale for example) these whisperers. It may not always be cash either. It might be a more favorable treatment of the whisperer's own investment account by the provider or broker concerned. Somehow, it get down to them - somehow they know they'll benefit from steering people to them.

 

[T McGibney]

@tmcg: By giving the stock advice:

"See a good FA, JJ. There's too much at stake for someone like me to be advising you. I had to do the same thing myself. 'Tis worth it all in the end."

...
In that situation, someone somehow has to blow a whistle.

I'm struggling to detect any practical point here. Unless you're proposing (as your last sentence seems to suggest) some sort of system to police or outlaw pub talk?

 

[Brendan Burgess]

Trajan

I have absolutely no idea what the point of your thread is - if there is one.


But vague stuff like this tends inevitably to personalised comments which just creates work for me so I have deleted the last raft of posts and am closing the thread.

If you have a question about regulation , as distinct from some vague philosophical points, then contact the Central Bank.

Brendan