Advice or Guidance? Why it matters

The terms advice and guidance are often used interchangeably when it comes to financial matters, but in reality, they are very different. And in today’s fast-changing financial landscape, understanding this difference is essential.

Since the introduction of the Pension Freedoms in 2015, individuals have had greater control over how and when they access their defined contribution (DC) pension pots. In response, the government established services to offer free, impartial guidance aiming to help people aged 50+ understand their options and avoid costly mistakes.

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One such service is the MoneyHelper platform, provided by the Money and Pensions Service (MaPS), previously known as Pension Wise. The idea was (and still is) to ensure people receive basic, unbiased information before making decisions about their retirement income.

As UK Pensions Minister Guy Opperman put it, “We will introduce new provisions requiring trustees of occupational pension schemes to nudge members to appropriate guidance when they seek to access their pension through the pension freedoms.”

This “nudge” while helpful, begs the question: is general guidance really enough when you're making decisions about what could be hundreds of thousands of pounds of lifetime savings?

What’s the difference between guidance and advice?

Guidance

Guidance is all about information rather than recommendations that are specifically tailored to your situation. It helps you better understand the options available, but the responsibility to decide and act lies entirely with you.

Government services like MoneyHelper for example, or your pension provider’s website may offer generalised content, online tools, or telephone support to guide you through the basics of pensions, investments, or budgeting.

In fact, anyone, including friends or colleagues, can technically give “guidance”. But remember, they aren’t liable for the outcome, and you're not protected if things go wrong.

What you won’t get from guidance:

• Personalised recommendations
• Product suggestions
• A risk assessment of your circumstances
• A regulated professional who is accountable for their advice

Advice

Advice, by contrast, is personal, specific, and regulated. When you take financial advice, you're working with a qualified and authorised Financial Adviser who assesses your entire financial situation, whether that be your goals, risk tolerance or future plans, then recommends a course of action tailored to you.

You’re also protected. Advisers are regulated by the Financial Conduct Authority (FCA) and must adhere to strict standards. If something goes wrong, you may have access to the Financial Ombudsman Service and Financial Services Compensation Scheme.

What about the cost? And is it worth it?

Guidance is usually free and is offered by government-backed services or your pension/investment provider, for example. It’s a good starting point, especially if you just want to understand your options or educate yourself.

Advice, however, is a paid professional service, and like any other expert service, the cost reflects the time and complexity involved.

There are two main types of advisers:

• Independent Financial Advisers (IFAs), who offer whole-of-market advice across a full range of products and providers. All our advisers at The Private Office are Independent Financial Advisers.
• Restricted Advisers, who are limited in the scope of advice they can give, often tied to a particular provider or product range.

Choosing the right type of adviser can significantly impact your financial outcomes. Independent advice means you're more likely to get the best solution for you rather than for the adviser’s institution. 

The rise and possible risks of AI in financial guidance

A key change in the advice landscape is the increasing use of Artificial Intelligence (AI), particularly Large Language Models (LLMs) like ChatGPT and other advanced systems. 

Using LLMs as a substitute for regulated financial advice carries several risks. To be balanced, however, on one hand, there are benefits, including speed, ease of access and lower (or no) cost. But the pitfalls are real and therefore need to be carefully considered.

Here are some of the potential risks:

1. Inaccuracy & outdated / partial information
   LLMs may rely on data that is not fully up to date, or doesn’t reflect recent regulatory, tax or product changes. They also generate plausible‑sounding but false or misleading information, known as hallucinations, from time to time.
2. Lack of holistic view
   AI tools typically only see what you tell them. They can’t pick up life‑events you haven’t mentioned, emotional preferences, long‑term goals, or unexpected future needs. A human adviser can ask probing follow‑up questions to uncover things you may not have thought to tell them.
3. No regulatory protection
   Advice from AI tools is not regulated in the way financial advice from an FCA‑authorised adviser is. If things go wrong, there is no ombudsman to make claims, no compensation scheme, and no requirement that those giving the advice act in your “best interests.”
4. Overconfidence & misplaced trust
   Because LLMs are good at generating fluent, confident text, people may overestimate their reliability.
5. Potential for financial loss
   Applying generic or inappropriate advice could cost money e.g. picking wrong investment vehicles or mismanaging tax implications.

The value of advice is still stronger than ever 

It can often be a daunting task for individuals to think about their financial futures. Working with a qualified financial adviser can help to alleviate the burden of worry, become better educated on their finances and receive actionable advice on how to improve their situations.

An update to the International Longevity Centre’s research showed the long-term value of advice:

• Advised individuals can be up to 24% better off after a decade compared to those who don’t take advice.
• The benefits are especially strong for those with modest wealth, proving that advice isn't just for the wealthy.
• Those who seek advice regularly (e.g. annually) see even stronger outcomes over time. 

In Summary – Guidance vs Advice

You get what you pay for, and when it comes to your lifetime savings and financial future, that advice could make all the difference.

Start with a free, no-obligation consultation

If you’re thinking about the next stage in your financial journey and want trusted, independent advice, get in touch to arrange your free consultation with a qualified adviser. 

At The Private Office, we offer chartered, independent, whole-of-market advice, recognised as the gold standard in the industry. If you have £100,000 or more in pensions, savings or investments, you can start with a free initial consultation (worth £500) with one of our regulated Financial Advisers.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate tax advice or cashflow modelling.