Financial advice vs. guidance - 
what's the difference?

Financial advice and guidance, although inherently different, sit closely together. We look at what you need to know if you’re thinking about what to do with your finances.  

While thinking about your financial future, you may have come across suggestions online, or in the press, on what to do. But should you take up these ideas? This is where understanding the difference between financial advice and guidance is important.

For example, if you have £50,000 to invest, you may come across suitable portfolio suggestions while carrying out research on the options available to you. These may be tailored to how much investment risk you want to take; however, it could be a mistake to accept such suggestions as financial advice and take action.

How are they different?

An FCA (Financial Conduct Authority) report published in 2017 states, “‘Advice’ is a service which recommends a specific course of action based on consumers’ individual circumstances and goals. ‘Guidance’, on the other hand, provides information and/or options to narrow down consumers’ choices, without making an explicit recommendation.” It goes on to say, “While ‘advice’ may only be provided by a regulated individual or firm, ‘guidance’ is provided by a wide range of individuals and organisations which may or may not be regulated” 1.

Guidance – what is it?

The route you take will depend on your individual needs. For example, if you’ve only started to think about your long-term financial plans or you’re unsure about your pension options, guidance might be right for you. At this stage you may want to gather as much information as possible, to help narrow down your choices before taking action. Guidance is usually free, and often unregulated by the Financial Conduct Authority (FCA) – but a regulated firm can also give guidance.

Financial advice –what is it?

However, if you’re at a point where you feel you have all the information you need to make a decision about what you want, or a life event has taken place that warrants getting outside help, face-to-face financial advice may be your preferred choice. When taking advice, a qualified and regulated financial adviser will work with you to identify specific options that are most suited to your individual circumstances and answer any questions you have. This tailored in-person approach takes into consideration things like your needs, goals and your willingness to take on investment risk while bringing the ‘human touch’ and understanding to an extremely important process.

Unlike guidance, with advice, there is a fee to pay. Some advisers charge for an initial consultation, while others offer non-obligatory advice where you only pay if you take the advice and become a client.

Are there other options?

Robo-advice is an option that sits between guidance and face-to-face advice. It may appeal to you if you prefer not to see someone in person, and would rather receive financial and investment advice online. The human adviser is replaced by a digital platform – or robo-adviser – that uses automation and mathematical algorithms to deliver regulated advice. Robo-advisers typically charge a fixed monthly fee, which often depends on the size of the portfolio.

This non-personal advice style may prove tough in times of market uncertainty when direct reassurance from an adviser could be helpful in understanding what is happening or could happen to your investments.

I’m considering financial advice – what do I need to keep in mind?

If you’re thinking about taking financial advice, there are several things you may need to consider beforehand:

  • Longevity - the relationship between you and your adviser will probably last for many years, so it’s important you find the right adviser for you. The FCA has a database of regulated advisers to help your search.
  • Human touch - face-to-face financial advice offers the personal reassurance many clients seek when making some of the most important financial decisions of their lives. Thinking about how you want to take advice, therefore, is essential.
  • Types of advice – there are generally two types of advice and they depend on the adviser you choose and your requirements. Independent advice looks across the whole of the market for the most suitable solution, while restricted advice offers products limited to a specialist area or offered by a specific provider(s).

Both guidance and advice play an important role when it comes to making extremely important and long-lasting financial decisions. The route you choose will wholly depend on your circumstances and the outcome you’re after, so it’s crucial to take the time to think about the right choice for you.