Advice or execution only?

The thin line between what constitutes investment advice and what constitutes execution only business has always been an area of concern for the regulator and the regulated. John Virgo , barrister and Philip Ryley , solicitor, take a brief look at the legal definitions.

What constitutes investment advice is important for at least three reasons: (1) on the whole, the general law of negligence provides that investment advisers are only liable to their clients for giving ‘advice’and not simply for providing information (provided the information is not materially inaccurate); (2) the provision of investment advice is regulated, whereas the giving of mere information is not;and (3) the ‘know your client’ and ‘suitability’ requirements of the Conduct of Business rules (COBS) are disapplied in the case of an ‘execution only’ transaction, which, under the COBS rules, is now defined as “a transaction executed by a firm upon the specific instructions of a client where the firm does not give advice on investments relating to the merits of the transaction and in relation to which the rules on assessment of appropriateness do not apply.”