Q5.1 Broadly speaking, what is advice?
Advice means giving an opinion as a guide to action to be taken, in this case the liquidation of debts. It either explicitly or implicitly steers the customer to a particular course of action.
A key question is whether an impartial observer, having due regard to the regulatory regime and guidance, context, timing and what passed between the parties, would conclude that advice had been given. One should look at whether what the adviser says could reasonably have been understood by the client as being advice which would help him make up his mind.
The concept of advice is broad enough to include any communication with the debtor which, in the particular context in which it is given, goes beyond the mere provision of information and is objectively likely to influence the debtor's decision whether or not to undertake the course of action in question.
Any course of action does not have to be identified in any detail. For example advice to opt for one of a number of identified possible debt solutions without advising which one of those the client should adopt may, depending on the circumstances, be debt counselling.
Q5.2 Does advice include a recommendation?
Yes, a recommendation to carry out a specific course of action to liquidate a relevant debt is likely to be debt counselling. However, something falling short of an explicit recommendation can be regulated too. Any element of evaluation, value judgment or persuasion is likely to mean that advice is being given.
Q5.3 Is giving information advice?
In the FCA's view, advice requires an element of opinion on the part of the adviser or something that might be taken by the debtor, expressly or by implication, to suggest or influence a course of action. Information, on the other hand, involves statements of facts or figures.
In general terms, simply giving balanced and neutral information without making any comment or value judgement on its relevance to decisions which a debtor may make is not advice. The provision of purely factual information does not become regulated advice merely because it feeds into the debtor's own decision-making process and is taken into account by him.
Therefore, a neutral and balanced explanation of the implications of entering into different debt solutions need not, itself, involve debt counselling.
In the FCA's opinion, however, such information is likely take on the nature of advice if the circumstances in which it is provided give it, expressly or by implication, the force of a recommendation.
For example the adviser may provide information on a selected, rather than balanced and neutral, basis that would tend to influence the decision of the debtor. This may arise where the adviser offers to provide information about certain ways of liquidating the debtor’s debts that contain features specified by the debtor. The adviser may then exercise discretion as to which course of action to highlight.
A key to the question whether advice is given is whether that information is either accompanied by a comment or value judgment on the relevance of that information to the client's decision, or is itself the product of a process of selection involving a value judgment so that the information will tend to influence the decision of the recipient. In both these scenarios, the information acquires the character of a recommendation.
One factor in deciding whether what was said by an adviser in a particular situation did or did not amount to advice is to look at the inquiry to which the adviser was responding. If a debtor asks for a recommendation, any response is likely to be regarded as advice.
On the other hand, if a debtor makes a purely factual inquiry it may be the case that a reply which simply provides the relevant factual information is no more than that. In this case it is relevant whether the adviser makes it clear that it does not give advice or whether the adviser runs a debt counselling business.
Q5.4 PERG says a lot about generic advice in relation to other sorts of regulated advice. Is the idea of generic advice relevant to debt counselling?
Generic advice is a term the FCA uses to refer to something that is advice rather than mere information but which is not regulated because, although it relates to investments, it is not about the merits of buying or selling a particular investment.
The concept of generic advice is potentially relevant to debt counselling. As explained in the answer to Q1.2 (What are the regulated activities specifically relating to consumer credit debt counselling?) and Q4.1 (Does debt counselling cover advice given to the public in general rather than to a particular debtor?) debt counselling relates to the particular debts of a debtor. Advice that does not relate to particular debts in this way is likely to be generic advice.
However, as explained in the answer to Q5.1, advice may be debt counselling even though the advice does not identify a course of action with any precision. This narrows the types of advice that will be excluded from being debt counselling on the grounds of being generic advice. Another reason for generic advice being less relevant to debt counselling is that other types of regulated advice relate to a very specific activity, such as buying or selling investments, while the range of activities covered by debt counselling is wide.
See example (5) in the table in Q7.1 for an example of where generic advice is relevant to debt counselling.
Q5.5 Does a decision tree involve debt counselling?
Scripted questioning involves using any form of sequenced questions in order to extract information from a person with a view to facilitating the selection by that person of a method of liquidating his debts under a credit agreement or a consumer hire agreement. A decision tree is an example of scripted questioning. The process of going through the questions will usually narrow down the range of options that are available. Scripted questions must be prepared in advance of their actual use.
Undertaking the process of scripted questioning gives rise to particular issues concerning debt counselling. Whether or not scripted questioning in any particular case is debt counselling will depend on all the circumstances. If the process involves identifying one or more particular courses of action then, in the FCA's view, to avoid debt counselling, the critical factor is likely to be whether the process is limited to, and likely to be perceived by the debtor as, assisting the debtor to make his own choice of how to liquidate his debts. The questioner will need to avoid making any judgement on the suitability of one or more courses of action for the debtor.
The potential for variation in the form, content and manner of scripted questioning is considerable, but there are two broad types. The first type involves providing questions and answers which are confined to factual matters (for example, the nature and size of the debts). There are various possible scenarios, including the following:
(1) The questioner may go on to identify several courses of action which match features identified by the scripted questioning; provided these are presented in a balanced and neutral way (for example, they identify all the possible courses of action, without making a recommendation as to a particular one) this need not, of itself, involve debt counselling.
(2) The questioner may go on to advise the debtor on the merits of one particular course of action over another. This would be debt counselling.
(3) The questioner may, before or during the course of the scripted questioning, give information that considered on its own would not involve debt counselling and, following the scripted questioning, identify one or more particular courses of action. The factors described in the answer to Q5.6 are relevant to deciding whether there is debt counselling.
The second type of scripted questioning involves providing questions and answers incorporating opinion, judgement or recommendations. This will involve advice not just information. There are various possible scenarios, including the following:
(4) The scripted questioning may not lead to the identification of any particular course of action; in this case, the questioner has provided advice, but it is generic advice and does not amount to debt counselling. As explained in the answer to Q5.4 (generic advice) this will be an uncommon scenario.
(5) The scripted questioning may lead to the identification of one or more particular courses of action. This is likely to be debt counselling.
Q5.6 What are the factors mentioned in paragraph (3) of the answer to Q5.5?
The FCA considers that it is necessary to look at the process and outcome of scripted questioning as a whole. Factors that may be relevant in deciding whether the process involves debt counselling include the following:
(1) any representations made by the questioner at the start of the questioning relating to the service he is to provide;
(2) the context in which the questioning takes place;
(3) the role played by any questioner who guides a person through the scripted questions;
(4) the outcome of the questioning (how many courses of action are highlighted, how precise they are, whether the questioner will help the debtor to carry out the course of action, whether the questioner identifies any third party who might help the debtor to carry out the course of action and the relationship between the questioner and that third party and so on); and
(5) whether the scripted questions and answers have been provided by, and are clearly the responsibility of, an unconnected third party (for example, the FCA), and all that the questioner has done is help the debtor understand what the questions or options are and how to determine which option applies to his particular circumstances.
Q5.7 Does the medium used to give advice matter?
The medium used to give advice should make no material difference to whether or not the advice is debt counselling. Advice can be provided in many ways including:
- • face to face;
- • orally to a group;
- • by telephone;
- • by correspondence (including e-mail and text messaging);
- • through the provision of an interactive software system.
However advice given in a publication, broadcast or website raises different issues (see the answer to Q4.1 (Does debt counselling cover advice given to the public in general rather than to a particular debtor?)).