Execution-only platforms could be deemed to have given advice if investors perceive that advice was given, says regulator

At an industry event last week, Rory Percival, the FCA's technical specialist, said that "the customer’s perception is a very key determinant" of whether information provided about retail investments constitutes advice, according to a report by Money Marketing.

Financial services law expert John Salmon of Pinsent Masons, the law firm behind Out-Law.com, who earlier this month called on the FCA to give more guidance to firms about "what it believes will amount to providing opinions and making value judgments", said Percival's comments were to be welcomed.

The issue of whether platforms can be said to be providing advice is important as the provision of retail investment advice is subject to a set of new rules that kicked-in at the end of last year.

Under the Retail Distribution Review (RDR) regime, financial advisers are required to inform clients whether they are providing advice on an 'independent' or 'restricted' basis, and they are prohibited from receiving commission from product providers or fund managers for recommending to clients that they invest in particular products or funds.

An 'execution-only' platform is a term that is used for a platform that does not offer advice when allowing investors to select which products or funds to invest in.

However, Percival has said that execution-only platforms cannot merely say that they are not providing advice, such as by claiming as much on their websites, according to the Money Marketing report.

"I don’t think the regulations are absolutely clear cut to allow you to say ‘that is advice and that is not’," Percival said, Money Marketing reported. "In practice, the customer’s perception is a very key determinant of whether it is advice or not. One of our lawyers, within what was the FSA, said to me, ‘If it looks and feels like advice, it probably is advice’, and that is actually quite a good test."

John Salmon of Pinsent Masons said: "It is positive that the FCA is looking to provide more clarity as to the distinction between providing information and tools on the one hand and giving advice on the other."

"Execution-only platforms need to be careful not to stray into advice and as the FCA has warned the customer’s perception is no doubt a significant factor to consider. But the FCA’s warning should not be overstated or taken too literally. For instance, a platform would not want to rely only on the findings of market research testing as to the views of a focus group of customers. They should also consider objectively whether any platform features suggest that a customer should take one course of action over another," he added.

"Beyond the broad 'look and feel' test suggested by the FCA, platforms should consider whether risk assessment tools and any model portfolios generated by the platform could be viewed as recommending a certain course of action," the expert said. "While simply comparing the benefits and risks of one investment with another may not constitute a recommendation itself, as I mentioned in the financial services blog last week, platforms should carefully consider whether a best buy list or other provider promotions could be so construed."

Meanwhile, some financial advisers have said that the RDR reforms have made the task of processing new business more time-consuming. Almary Green managing director Carl Lamb told the Money Marketing website that he believes that the lengths it is going to ensure compliance with the regime has added an "extra two hours" to the time it takes to process new business.