Advice verses Guidance and the Danger of Getting it Wrong

I read an article yesterday that headlined “Influencers in Australia risk jail for breaking finance tips rules”.

The article read that influencers in Australia face a potential jail term of up to 5 years and have issued clearer guidance to social media influencers who discuss financial services and products online. It follows a study last year indicating that 33% of under 21s follow “Financial Influencers” and found that 64% changed their financial behaviour because of an influencer. This is where the danger may lie.

In the UK our regulator is the Financial Conduct Authority and one of their 3 key objectives is “protecting consumers” from financial harm. Last month the FCA urged caution in the marketing of financial solutions having earlier launched a consultation on how “high-risk investments” are marketed. They are very clear on their definition of Advice and in turn Guidance.

Advice

“Advice is a service which recommends a specific course of action based on the individuals circumstances”

FCA

A tailor made specific and personal recommendation telling you what action and product you SHOULD consider. Advice has to be given by a qualified, regulated individual and providers of advice are responsible for the accuracy AND suitability of the recommendation they make. This in turn means the person acting on the advice is protected by law. This consumer protection is key.

Guidance

“Guidance provides information and/or options to narrow down a consumers choice but without an explicit recommendation”

FCA

Guidance is impartial and serves to help you narrow down the choices available but will NOT tell you what you SHOUD do but will suggest what you COULD do. Guidance is often free and providers are responsible for the accuracy of their information, but NOT for any decision you make based on it.

Information should be accurate, balanced and not misleading.

The Grey Area

The grey area sits between HOW the information is provided, interpreted and perceived to be information worth acting on.

In bite size content, such as on social media, it is relatively easy to state an instruction rather than provide balanced guidance. Add to that the fear of missing out (FOMO) along with the perception that the influencer is a trusted source, may lead to their audience following that instruction as though it were also suitable for them.

Now that person has no recourse or protection if that action leads to financial loss.

How Money Smart are You?

Here’s some examples I’ve seen on Instagram posts this month that read as an instruction rather than guidance.

  • “Just invest in S&P 500”
  • “Put your money into Index funds”
  • “Use your emergency fund to pay off debt”
  • “Buy crypto currency to beat inflation”

None of those statements are personalised advice and recommendation, but neither are they generalised guidance with a range of other options to narrow down. None of them disclosed any affiliation links (if there were any) and none of them covered the benefits or risks of taking that action. They are explicit directions that may impact the financial behaviour of someone reading them. Whilst only 1 of those 4 examples would immediately fall into the FCAs consultation on marketing of “high risk” investments, all 4 could potentially lead to financial loss if acted on in isolation.

Financial Education and Knowledge Gaps

Everyone should be able to access financial education. It’s a life skill we use every day, yet in the UK it’s a lottery as to whether you receive that education in home, school or work. This knowledge gap means many of us start adult life not knowing what we need to know in order to manage the areas of money we can. We have to seek information out for ourselves and it can be hard to discern what to believe and what not to.

I no longer give financial advice but am a qualified adviser and a certified financial coach. I have an adviser and would always use her for investment, pension, financial planning, mortgage or protection decisions. But for most of my adult life I wasn’t in a position to afford or access advice and had to “figure it out” myself, as so many of us do.

So how and where do we go to figure it out?

Financial Resources

Until there is mainstream financial education for everyone, we need to access information ourselves. Money bloggers, financial influencers, educators, employers, technology and coaches all have a role to play and should be encouraged to do so.

Financial influencers whose aim is to share financial information, education, raise awareness and engage more people with money is a great thing. They have an engaged audience that may not be ready, willing or able to access regulated advice but through them can learn to engage positively with money. To become more confident, savvy, learn budgeting, debt or savings tips or how to have good financial conversations with partners, employers and children.

Especially in light of that statistic of “64% of consumers change their financial behaviour based on an influencer”. This could lead to a hugely positive change when information being shared is accurate, balanced, does not stray into advice nor encourage actions that may lead to financial loss.

Sharing financial information, talking about money and providing education from your own perspective and experience is a positive and should be encouraged – but with this financial influence comes responsibility.

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