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FSA provides clarity on platforms and independence

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The FSA has provided a more detailed explanation of when advisers can call themselves independent  while using one or more platforms.

In its policy statement on platforms published today, the FSA says although platforms currently have access to a wide range of collective investment scheme funds, they tend to offer a more limited range of products such as investment bonds, personal pensions and Sipps.

The FSA says this means in practice that independence rules can be harder to meet on those products when using platforms.

The regulator has set out a series of good and bad practice examples of where advisers would and would not meet the definition of independence when using platforms.

A firm that has segmented clients to provide a premier service to more wealthy clients, and which has carried out due diligence on itschosen platform, would still be independent where the platform has proved to be suitable for most clients, and where the firm recommended products off-platform where suitable.

If a firm recommended one platform regardless of their needs, this would not be classed as independent advice.

A firm can use one platform for the majority of clients, provided that is mindful of other products across the market. If a firm uses a single platform routinely for all clients, the FSA says this risks unsuitable advice for some clients, particularly where a platform has a fixed fee but the client’s investment amount is very low.

Firms can use multiple platforms for different client segments with different needs, as long as there is a process in place to ensure each client is considered individually.

Where a firm has individual advisers using different platforms, with a lack of consistency in approach, the FSA deems this to be bad practice.

The FSA says: “The outcome we are seeking is not about ensuring an artificial spread of investments to meet the independence rule, it is about being mindful of the range of product and investment options across the whole market in order that firms can provide suitable  advice to their clients.

“In this context, it is important for firms to be clear about which clients the overall solution - the platform, the products, funds and adviser services - are suitable for, and in their best interests, and which are not.”

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Readers' comments (1)

  • Has the FSA given any guidance regarding the potential conflict of interest that IFAs may have to consider when owning shares in platform providers or paying a fee to a wrap platform provider to use their services?

    Genuine question.

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