Clients' protection needs must take priority over investment ones in a simplified advice regime, the FSA has said.
The regulator warned advisers not to rely on clients to judge for themselves that they have sufficient protection and savings already in place.
It also stated that advisers must consider a client's level of debt and savings before approaching investment products.
The guidelines were issued in its guidance consultation on simplified advice, in which the FSA noted that a simplified advice process may be appropriate for consumers who:
a) have their priority needs met, that is, they do not need to reduce existing debt, they have adequate access to liquid cash (i.e. savings), and have any core protection needs met;
b) have some disposable income or capital that they wish to invest; and
c) do not want a holistic assessment of their financial situation, but rather advice on a specific investment need.
Later in the paper, it reinforced the importance of prioritising protection, debt and savings, adding: "In order to meet its responsibilities under the client's best interests rule and Principle 6, and to comply with the suitability requirements, a firm should not recommend that a client purchase an investment product unless they have a reasonable basis for believing that they can afford the new commitment.
"In addition to considering its client's level of indebtedness and access to liquid cash to meet an emergency, a firm should consider whether the client has any basic protection needs which are not met.
"It should not recommend a retail investment product if it would be in the client's best interests to use this money to buy insurance cover instead."
The FSA has also warned that advisers using a simplified advice system must not rely solely on a client's judgement as to whether their protection needs are met.
It said: "The system should not, for example, rely solely on clients to judge whether the level of their debt, emergency savings or protection means that a retail investment product is suitable for them.
"Also, firms are not released from their obligation to ensure each personal recommendation is suitable if a client is asked to agree to accept that the process will not consider their existing investments, level of debt or access to liquid cash."
