What is the difference between advice and guidance?

Written by: Hayley Millhouse
Do you need to seek professional advice to help with your financial decisions? Or is free guidance enough?

Although many people are happy to make decisions about their finances without specialist help, not everyone feels the same way. According to recent research by OpenMoney and YouGov, almost 20 million people feel they would benefit from free financial advice.

Managing your money can be challenging. Complex jargon can add to the confusion and some decisions, like around mortgages, investments and pensions, can make a big difference to your future finances. It’s only natural that some of us would appreciate some help.

What is guidance?

Financial guidance can be accessed via a range of different services, from personal finance websites like YourMoney.com, to organisations like Citizens Advice and the government’s own Money and Pensions Service.

They provide specialist financial information – usually for free – which can help you narrow down your choices, but they are not allowed to give a personal recommendation of where to save or invest your money. You are solely responsible for making sure any products you buy based on their information are appropriate for your needs.

What is advice?

Alternatively, a regulated financial adviser will look at your specific financial situation and give personalised advice, for instance around mortgages, pensions or investments.

Financial advisers look at your wider financial situation and advise on the best course of action to meet your goals. For instance, they may advise you not to invest at the moment, but instead focus on reducing your debt or building up an emergency cash buffer.

A regulated financial adviser has been approved by the Financial Conduct Authority (FCA), which means you are protected if their advice turns out to be unsuitable for you. However, you usually have to pay for regulated advice and our survey found that many people believe that traditional advice is too expensive, or they don’t earn enough money.

What about robo-advice?

You may have heard of robo-advice which, for investment products in particular, is often touted as filling the gap between free guidance and paid-for regulated advice.

By using technology to replace certain human functions, it is possible to offer a more cost effective route to investing. However, while some digital wealth managers do offer one-off or ongoing advice, most simply guide you through a series of options to select investments that they will manage for you.

If you choose this route, it’s important to understand whether the provider offers fully regulated advice or is simply giving you guidance. If it’s not regulated advice, you won’t have any protection if the investments turn out not to be suitable for your needs.

Advice or guidance?

When deciding whether you need advice or guidance for a financial matter, think about how much support you need initially and on an ongoing basis. If you are looking for home insurance, a new current account or want to research more complex financial products, a free financial guidance organisation or comparison site could be a good source of information.

For decisions around investments, pension planning or a mortgage, which could have a major impact on your financial situation in the future, you may be better getting regulated financial advice from a traditional or digital provider.

In our survey, few people sought help from a financial specialist, yet when they did take guidance or advice, the majority found it beneficial. Help is out there, to protect your financial future, it is well worth seeking it out.

Hayley Millhouse is head of advisory services at OpenMoney, a financial advice app

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