Financial advice: what's regulated and what's not?

D

Dan Murray

Guest
My understanding is that the sale of financial products (and related product specific advice) is regulated by the Central Bank but that the provision of general financial advice is not.

Is this understanding correct?
If correct, does it make sense that financial advice is unregulated and what's the position in other countries?
How do advisers draw the line between advice that's regulated and unregulated?
 
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You are correct Dan, general finance advice is not regulated. I am not so sure about advice on financial products though even though you are not selling them. I know a very successful financial planner who is not regulated at all and just does financial plans for clients. He outsources and advice on products to an authorised adviser.

As I am regulated, I don't look into the nuances between regulated and unregulated advice. I know what kind of advice I am capable of giving and what I am not capable of. For example, I have an understanding of tax but won't give people tax advice outside of the basic stuff that applies to my area of expertise. I know plenty of really good tax advisors who I get to do the work in that area.

I won't advise on unregulated products. I have come across people trying to sell me investments in wine etc. Not my kind of thing. Too high of a chance of failing and my PI probably doesn't cover it either!





Steven
www.bluewaterfp.ie
 
Dan Murray said:
Is this understanding correct?
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The provision of investment advice, in the sense of providing personal recommendations to a client in respect of one or more transactions relating to financial instruments, is certainly a regulated activity.

Acting as an insurance intermediary is a separately regulated activity.
 
SBarrett said:
As I am regulated, I don't look into the nuances between regulated and unregulated advice.
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Thanks, as ever, Steven.

I've been reading the CPC in relation to something completely different and was struck by section 4.7 and subsequent sections.

I completely understand where you're coming from but I think that you do need to distinguish between regulated and non-regulated activities! Otherwise, I can't see how you can satisfy the CPC.

FWIW, this part of the CPC looks a little silly to me. I guess the main point of my initial post was how adviser's could/should draw the line between advice that's regulated or not.

Sarenco - as you might say yourself.......I'm in violent agreement with you! :)......I accept that advice in relation to financial products is a regulated activity.
 
The issue of Regulation can be very misleading to consumers.

The Central Bank are very rigorous in their regulatory activities and do a great job. As a result, the Central Bank have a great reputation with the consumer, and thus consumers take great comfort when they see from a web site or a letterhead that their advisor is regulated by the Central Bank.

However, not all advisors are regulated by the Central Bank, and not all advisors are equally good. For example, Debt Management Firms("DMF") have to be regulated by the Central Bank. Some DMFs are also authorised to act as PIPs, and are thus in a position to offer the full suite of possible solutions to distressed borrowers. However, some DMFs are not authorised to act as PIPs, and thus are unable to do "no veto" PIAs etc. As a result, there is a real risk that a distressed borrower will not receive the best advice from a DMF, but instead may be encouraged to enter a costly "payment plan" which does not achieve a long term solution.


Jim Stafford
 
Thanks Jim,

What I am really trying to understand is that where you have a financial adviser, it seems, that:
- he needs to be regulated to provide advice on investment/insurance products and must disclose that he is so licensed by the Central Bank on letter heads, websites, etc.
- he can provide general financial advice but must not use the regulatory disclosure statement on letter heads, relevant section of websites, etc.

So what I would like to know is where is the line drawn here! So, for example, if a financial adviser meets a client and is recommending, at a high level, paying down the mortgage, rather than paying into a pension - would this be considered general financial advice and therefore unregulated? The follow-on question is at what point does unregulated advice switch into the regulated sphere?!
 
Dan Murray said:
Thanks Jim,

What I am really trying to understand is that where you have a financial adviser, it seems, that:
- he needs to be regulated to provide advice on investment/insurance products and must disclose that he is so licensed by the Central Bank on letter heads, websites, etc.
- he can provide general financial advice but must not use the regulatory disclosure statement on letter heads, relevant section of websites, etc.

So what I would like to know is where is the line drawn here! So, for example, if a financial adviser meets a client and is recommending, at a high level, paying down the mortgage, rather than paying into a pension - would this be considered general financial advice and therefore unregulated? The follow-on question is at what point does unregulated advice switch into the regulated sphere?!
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I came across this a number of years ago. Technically, you have to be a registered mortgage advisor to recommend that someone pay down their mortgage early. I remember discussing this with an accountant friend of mine and he thought it was ridiculous as he was always telling clients with money to pay off debt early.

I'll have a read through the CPC again as I haven't read it in a couple of years. From what I remember, I think the differentiating yourself between regulated and non-regulated is say where you came to me and I spoke to you about a pension and an unregulated investment property in Spain. Any communication to you regarding the pension and the Spanish property must be on separate headed paper. Any communication regarding the Spanish property cannot say anything regarding being regulated by the Central Bank of Ireland. That includes emails, headed paper, business cards.


Steven
www.bluewaterfp.ie
 
Hi Steven,

I think you should indeed read the CPC again - as per the previous reference (4.7) which I think is crystal clear!! The requirement to not use the regulatory statement applies to all non regulated activities - which, as you said earlier, includes financial advice - i.e. it doesn't have to be exotic for it to be non regulated!! IMO, it's an incredibly strange rule but that's the rule.

Out of curiosity, I've just had a look at a number of websites of financial advisers and, as you would expect, many of them have a specific section on "financial planning" as a service they provide. The interesting bit, however, is that out of the six websites that I looked at, three of them specifically said something along the lines that "as financial planning is not a regulated activity, this part of our service is not regulated by the Central Bank" whereas the other three had the regulatory statement included on the financial planning page - i.e. in direct contravention of 4.7 (b)

Presumably, the 3 advisers that mention the non regulated nature of financial advice are going to the trouble of using separate headed paper, business cards, etc. for financial planning activities (which is consistent with my reading of the CPC).

What I don't understand - and the reason for starting this thread - is where financial adviser's draw the line between what's regulated and what's non regulated. It seems to me, given the website example mentioned above, that financial advisers are very unclear themselves in relation to this whole area. If this is the case then that also is a pretty strange state of affairs.

Rather than go round in circles on this one, Steven - who do you call if you want to call Europe? - i.e. is there some specialist compliance hotline that financial advisers can ring to get confirmation of what's required? The only conclusion that I can come to - following my mini survey - is that one group of AUTHORISED advisers is almost certainly in breach of the CPC.
 
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I'm going on holidays in a few weeks, I'll bring a copy with me and read it then. I read Chapter 4 this morning though and would be happy that I satisfy their requirements.

I would argue that elements of the financial planning process is a regulated activity. There is the analysis of existing products, the funds invested in then there is the implementation of financial products if they are required as part of a solution.

I am a member of PIBA and I use their compliance department for any queries that I have. I went through old emails and saw the one where I submitted my Terms of Business for review. This contains my financial planning service and it was not edited at all (and the document was heavily edited!!), so I am presuming it is ok as it was vetted by someone who works in compliance.

I believe the Central Banks intention is to avoid people claiming to be regulated by the Central Bank and selling bottles of wine as investments.


Steven
www.bluewaterfp.ie
 
SBarrett said:
I would argue that elements of the financial planning process is a regulated activity.
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That is exactly my point!!

I think we agree that:
- generic financial advice is non regulated
- advice in relation to products is regulated

So......where is a financial adviser meant to draw the line? How can an adviser deal with requirements like this one?
A regulated entity may only use the regulatory disclosure statement in communications with a consumer where such communications relate solely to a regulated activity.

SBarrett said:
I believe the Central Banks intention is to avoid people claiming to be regulated by the Central Bank and selling bottles of wine as investments.
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But that is not what the CPC says - YMMV!!!!

For the avoidance of doubt, I'm sure you are operating with absolute integrity - I just can't see how you satisfy this particular rule! The whole thing seems like a bit of a farce to me. If I was in your shoes, I think I'd be inclined to get comfort from PIBA. Maybe PIBA has issued guidance on this? [My own financial adviser is on holidays so I don't want to bother him - FWIW, his approach mirrors that of your good-self!].
 
I've sent an email to PIBA looking for their opinion.

Dan, I'm not as down with the text lingo as you so I have no idea what YMMV means :oops: I figured out FWIW though :p
 
Dan Murray said:
Thanks Jim,

What I am really trying to understand is that where you have a financial adviser, it seems, that:
- he needs to be regulated to provide advice on investment/insurance products and must disclose that he is so licensed by the Central Bank on letter heads, websites, etc.
- he can provide general financial advice but must not use the regulatory disclosure statement on letter heads, relevant section of websites, etc.

So what I would like to know is where is the line drawn here! So, for example, if a financial adviser meets a client and is recommending, at a high level, paying down the mortgage, rather than paying into a pension - would this be considered general financial advice and therefore unregulated? The follow-on question is at what point does unregulated advice switch into the regulated sphere?!
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Whether relevant or not, this may help, although it refers to MiFID it would equally apply to IIA firms. Comes from FG15 (FCA)

For advice to be regulated at all, it must relate to a specific investment and must be given to the person in their capacity as an investor or potential investor, or in their capacity as agent for an investor or potential investor, and relate to the merits of them buying, selling, subscribing for or underwriting (or exercising rights to acquire, dispose of or underwrite) the investment. If it does not have all of these characteristics then it is generic advice and is not regulated. For example:  Advice to a customer to buy shares in ABC plc or to sell Treasury 10% 2014 stock is advice about a specific investment and so is regulated.
 Advice to buy shares in the oil sector or shares with exposure to a particular country is generic advice because it does not relate to a specific investment and is not regulated.
 Advice on whether to buy shares rather than debt is generic advice and is not regulated.  General advice about financial planning is generic advice and is not regulated.
 Guiding someone through a decision tree where they make their own decision, would not normally be advising on investments
 
Hi Dan

Heard back from PIBA. No reference to "regulated by the Central Bank of Ireland" can be used in email, headed paper or website for anything to do with financial planning.

Putting the wheels in motion to make the changes now.


Steven
www.bluewaterfp.ie
 
SBarrett said:
Heard back from PIBA. No reference to "regulated by the Central Bank of Ireland" can be used in email, headed paper or website for anything to do with financial planning.
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Hi Steven,

Firstly, kudos for your customary frankness.

What I'm struggling with is how you can possibly satisfy this rule in practice! What exactly does PIBA's guidance notes say? It seems completely silly to me. At a very simple level, what business card would you give someone who says to you - "I'd be interested in having a chat with you.....can I have your card please?"

Earlier in this thread, you understandably said that you don't have to worry about the nuances of what is and what is not regulated. Taking these requirements at face value, it seems to me that, from here on, you'd have to spend an inordinate amount of time thinking about such nuances! I wish you luck in your attempts to square this particular circle! When my own financial adviser comes back from holidays, I think I'll make sure he has a good glass of whiskey in hand before mentioning this to him!

So what is and what is not regulated? Apart from Nordkapp's helpful post, I'm still unclear. Take the following examples and considering FG15:

1. If I go to you to discuss my finances and you talk me through my life and financial goals (say, the willing, able and need to take investment risk stuff) - is that discussion regulated or non-regulated?

2. If the discussion develops and you talk to me in general about the high level merits and characteristics of different asset classes, is that regulated or non-regulated?

3. If you explain the merits of active versus passive investment, is that regulated or not?

4. Is it only when you get into the merits of specific products that it becomes a regulated activity?


The two main points that strike me in all of this are:

a. it must be almost impossible to adhere to these conditions in practice! (......they don't even work in theory!)

b. it is extraordinary that so many advisers seem to be unaware of or are simply ignoring these requirements (....just have a look at the website of very many the big hitters). I am simply using "websites" as an example of public evidence of broader non-compliance!

I said earlier that the whole thing seems like a farce to me - the more I think about it, the more farcical it becomes! FWIW, I don't subscribe to Jim's view of the Central Bank (cf. CHC, its oversight of the tracker debacle, etc.). Surely, the Central Bank can see websites of financial advisers and tell them "you can't be saying that" (the regulatory statement appearing in the financial planning section) if that is what it believes. Has the Central Bank not communicated clearly its requirements following audits of financial advisers, etc?
 
Very good post Dan.

From a compliance point of view, financial planning is very difficult as it is deemed to be unregulated yet we discuss many regulated areas and as part of the process recommend the implementation of financial products to solve problems that clients may have.

Adhering to every aspect of Central Bank regulations is also quite difficult for most advisors as they simply do not have the resources to keep up to date with all the regulation. For me, the most important one is "in the client's best interests". If the Central Bank audit me and I can always show that I was working in the client's best interest, anything else will be procedural which can be fixed easily enough. The Central Bank are all about making sure checklists are ticked with each product and the correct wording is used. It leads to an unnecessary amount of paperwork for clients to complete. This leads to information overload I believe that instead of providing clients with the details they need to make an informed decision, it has the opposite effect and most get information overload and don't read any of it.

I have written a lot about CHC and read the report which details how the Central Bank first audited CHC and discovered they were transferring clients funds to the property deals without permission. Instead of shutting them down immediately, they gave out to them for not having signed permission from the client!!! The Central Bank claim they have done everything in their power and have asked the govt to increase their powers (they sent me a paper on what they have asked for but I haven't got around to reading it). Of course, the government have done nothing.

Steven
www.bluewaterfp.ie
 
Steven,

Do you not think that the paperwork is actually beneficial for intermediary as well as the consumer. It is an audit trail of how a decision to recommend a particular product was arrived at. If a client is unhappy with the performance of an investment and takes a case against you, you have evidence which backs up your reasoning for recommending a product. If it was me I'd keep a record of this for regulated and unregulated activities!
 
Daffodils said:
Do you not think that the paperwork is actually beneficial for intermediary as well as the consumer.
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Hi Daffodils,

Neither I, nor Steven have ever said that having a sensible paper trail is not of merit to all!

That is, not at all, the point of the thread!!
 
Daffodils said:
Steven,

Do you not think that the paperwork is actually beneficial for intermediary as well as the consumer. It is an audit trail of how a decision to recommend a particular product was arrived at. If a client is unhappy with the performance of an investment and takes a case against you, you have evidence which backs up your reasoning for recommending a product. If it was me I'd keep a record of this for regulated and unregulated activities!
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An audit trail is needed laying out the reasons for a recommendation. It is the volume of paperwork that is the issue. I do not find giving a client a hundred pages of documents on pensions/life cover etc is beneficial to them.


Steven
www.bluewaterfp.ie
 
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