The disappointing outcome from the feedback statement is that we have lost the clear distinction between sales and advice, which looked so promising. However, the FSA has made it clear that the current proposals are the direction it intends to follow. Therefore, advisers and providers need to focus on how they are going to position their businesses to succeed in the proposed new environment.
Now it is clear that we are going to have multiple categories of advice and non-advised sales, it is of paramount importance that the labels and disclosure requirements applied to these categories are crystal clear.
As the proposals stand, the word advice carries no distinction or clarity. However, there is still opportunity in the definition of independent. Where consumers see independent, they have clarity that those advisers are acting as agents on their behalf. Where the word independent does not feature, the consumer has clarity that they are talking to someone who is acting as the agent of a provider.
A priority now is to ensure that the benefits of independent advice come to the fore. This must include making it clear what non-independent advisers are not, as well as what they are. In the US, for example, they have very clear risk warnings which state:
“This account is a brokerage account and not an advisory account. Our interest may not always be the same as yours. Please ask us questions to make sure you understand your rights and our obligations to you, including the extent of our obligations to discuss conflicts of interest and to act in your best interest. We are paid by people who compensate us based upon what you buy.”
With the current proposals, we must implement similarly robust and clear warnings in the UK. We might not want to be quite as Draconian as the US but it is crucial that we have clear, fair and not misleading disclosure about the intent, bias and range of choice offered by each type of adviser.
If an adviser cannot demonstrate that they are not biased towards one provider, then, by definition, their advice will be biased and not independent.
Perhaps the most unfor- tunate proposal in the feedback statement is that the minimum capital adequacy requirement for all advisers will double to £20,000 and that the 13/52ths rule should apply to the majority of advisers. This is nonsense and if the FSA’s intention was not to hurt the banks during a difficult economic period, it seems inconsistent to impose this on the adviser community.
The IFA of today should now be clear on what they need to do to become the IFA of tomorrow.
Peter Mann is chief development officer at Skandia