The case for ‘tailored guidance’ – and how not to cross the line into advice

What with income protection, life cover, workplace pensions, mortgages and more, nearly all of us have financial challenges that would best be worked through with a qualified professional.

But for reasons we all understand well (and I have set out here), regulated advice is not always accessed when it could be.

So good guidance must play a key part of the national effort to plug the ‘Advice Gap’. And it’s possible to do much better than just ‘guidance’. In fact, I’m going to make the case here for ‘tailored guidance’, a sort of super-relevant form of help that – when powered by technology – can deliver much of what a client needs while being perfectly clear that it is still guidance. I also want to contrast this with a strain of guidance that fails to make that distinction, thereby potentially misleading consumers and leading to poorly thought-out decisions.

So let’s start by clarifying the terms.

The difference between advice and guidance

Put simply, financial guidance tells us what we could do, whereas financial advice communicates what we should do. Anyone can dish out financial guidance and it is generally up to the judgment of the recipient whether it should be paid any heed. Financial advice, on the other hand, is offered by qualified, regulated professionals that complies with national standards.

Some unhelpful grey areas

Tailored guidance provides a bespoke service that considers an individual’s circumstances without crossing the line into advice. But several forms of guidance do cross that line. So it’s worth setting these out so we can clarify what tailored guidance absolutely is not.

● The first is ‘informal advice’. This is when a qualified adviser says to a client, or even an acquaintance who is not a client, something along the lines of: “This isn’t formal advice but, if I were you in your position, I’d do x, y and z.” I’m not necessarily saying this is common – but it certainly happens and consumers should be wary that it doesn’t come close to the required standards of financial advice.

● Then there is what you might call ‘reductive guidance’ – when a client’s options are presented and eliminated through a guidance process until, by pure function of maths, the client has only one option remaining. This puts the process in the domain of ‘should’, rather than ‘could’.

● Third is ‘implied advice’. This is where a client is presented a series of personas and, through a guidance process, shown how each of the personas should act in a given circumstance. When the client is told which of these personas best matches their own circumstances, they are effectively no longer only being told what they could do – they are being advised through implication what they should do.

● Finally, there is what you might call ‘ambiguous guidance’. This happens when a client is taken through a range of ways of managing their money and assets – often via an online investment, savings or pensions platform. It could be a SIPP or ISA provider or a pensions consolidation service but what these processes have in common is that they are often offering guidance around complex cases and inducing a feeling in the client that he or she is receiving regulated advice, when they are not. It might be that charges, fees and product structures require real consideration, yet have been given precisely none. A common element that contributes to this kind of ambiguity is almost hidden disclaimers that are supposed to clarify that advice is not being offered. Worse, some of these services will have arguably misleading notices referring to FCA authorisation, when those permissions – despite being real – do not relate to the services being offered. In cases where ‘ambiguous  guidance’ exists, the test is whether the client feels they have been advised (false), rather than guided (the reality).

So what is ‘tailored guidance’?

This is when guidance takes into account at least some of the individual’s circumstances. It will usually be accompanied by some kind of questionnaire or fact-find – and because it is so repeatable, it can be easily scaled using technology, like a smartphone app or desktop software. The result is that users are guided in a way that is relevant to them, meaning they’re not put off by any superfluous information.

The advantage to the industry is that if a user elects to see a human adviser at any point in the process, the case is ‘pre-filtered’ and much of it has already been completed. So the probability of that client being someone who requires the help the adviser wants to provide significantly increases.

Two areas – just for two quick examples – in which tailored guidance might be very helpful are inheritance tax (IHT) and debt. Taking the former, there are around a dozen key decisions that one can make in IHT cases and there are plenty of online guides, some with hundreds of pages of information in them. That sheer volume of text can be off-putting. The tailored guidance approach would be to ask the client a couple of very simple questions before presenting them with information and options. For example, do they have children or grandchildren? Very quickly you can eliminate some of the superfluous guidance.

On debt, the topic is huge: some people have mortgages and are paying 1% interest a year, others  have credit cards with a 20% APR, still others will have payday loans, charging 4,000% interest annually. So simply by asking people what sort of debt they have and whether they know what interest they are paying, we can massively narrow down the information or tips we give them, making that guidance more relevant.

So, as you can see, just because a client might not have opted for regulated financial advice, it doesn’t mean they have disqualified themselves from relevant guidance. And if we, as an industry, can use scalable technology to tailor that help in every case, we’ll be one step closer to addressing the Advice Gap.

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