What is Investment Advice and Investment Guidance?

What is the difference between investment advice and guidance?

Investment advice is a personal recommendation of what a registered advisor thinks a client should do when weighing up their investment options, whereas investment guidance is more general information about financial products. As advice is specific and actually tells the client what to do, any recommendation that the advisor offers are subject to the following conditions:

1. The recommendation is suitable for and personal to the client
2. It will be based on the clients’ specific circumstances, investment goals and financial objectives
3. In the UK, only an FCA-regulated firm can provide this kind of advice

What are the MiFID II Investment Advice Requirements?

Investment advice is regulated by the Markets in Financial Instruments Directive (MiFID II), specifically through a section called the ‘Client Suitability and Appropriateness framework’ 

MiFID II introduced requirements for Investor protection which are as follows:

• Aligning certain asset classes and Market Infrastructure to reduce Investor risk
• Mandating firms to provide more detailed information to Investors on costs and charges ie commissions charged
• To evaluate the client for suitability and appropriateness when providing investment advice or execution-only service
• To determine that the investment advice is being provided on an independent basis
• When firms cater to the role of providing investment advice to their clients or managing clients’ investment portfolios, it becomes the investment firms’ responsibility to extract the requisite information from the client so that a suitable recommendation can be made to the client

How do wealth managers evaluate the suitability and appropriateness of investments for clients?

A deep understanding of the financial situation of clients is essential, this includes investment knowledge, experience and investment objectives. This insight requires frequent interaction with clients to ask them for information, including career history or trading experience.