Single product will fail test
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Offering a product investing in a range of underlying investments will not meet the new definition of independence and firms offering their own funds must offer market-competitive charges.
The retail distribution review policy statement says that a single product that invests in a number of underlying investments would not meet the requirements for independent advice.
FSA head of investment policy Peter Smith says: “If we are requiring firms to look across the whole of the market, then it does not automatically follow that a structure of the sort that is described meets that test.
“The fact that the product people are being encouraged to invest in invests in a range of underlying things is not the same as saying the firm has looked across the whole of the market for individual consumers.”
Advisers who recommend distributor-influenced funds will not be able to adopt higher charges than for recommending other competing products.
The regulator says that an adviser firm should face no financial incentive to recommend a Dif over another collective investment scheme or potentially substitutable product.
Smith says, in some circumstances, it might make sense for an adviser not to look at certain products, such as structured products or products that do not give access to the Financial Services Compensation Scheme.
But he adds: “The presumption is independent advisers will look across the whole retail investment space with the broader definition we have set out and will then consider what is appropriate for the individual consumer that is set in front of them at that particular point in time.”
Evolve Financial Planning director James Norton says: “This will help remove the potential for bias, so, when coupled with the removal of commission and the regulator’s work on platforms, it is a positive and sensible step.”
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