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FCA: Advisers have gold plated independence rules

Small advice firms have created unnecessary problems for themselves by “gold plating” the regulator’s independence requirements, says FCA technical specialist Rory Percival.

The FCA published its findings of a thematic review into independent advice this week. Following the review, the FCA says its rules on independence are not as onerous as some advisers believe and are “perfectly achievable” for small firms.

In an interview with Money Marketing, Percival says while many believe the rules are difficult to comply with for small firms, advisers and compliance consultants are taking an overly cautious approach.

Pervical says: “We have always said that independence is a perfectly achievable standard, even for smaller firms.

“Why have firms got a different view? Perhaps part of it is some firms are very wary of the regulator’s requirements and gold plate the requirements.

“That may be something that comes from compliance consultants and compliance people who want to take a more cautious line than is actually merited.”

Asked whether the industry has created unnecessary problems for itself, Percival said: “We have certainly seen that in other areas and it is possible it has happened in this area too.”

Problems identified in the review included the use of platforms, referrals to other advisers and advisers not being able to consider all retail investment products.

Plan Money director Peter Chadborn says: “Advisers are being influenced by networks, which are very much erring on the side of caution on these rules, and by the vested interests of compliance consultants.”


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. He talks about firms but it is the individual that has to be Independent. I would have no problem if the firm could be Independent with individual specialists within but unless an adviser wants to be a jack of all trades Restricted is the only way for a specialist at present. If the FCA now want to back peddle – then fine.

  2. Given the numerous accusations against the FSA/FCA of gold-plating everything that comes out of Europe, is it not just a bit rich for Mr Percival to be suggesting now that IFA’s are gold plating its [the FCA’s] stated requirements for independence?

    Just where (as an IFA) do you draw the line between merely “considering” the relative merits or otherwise of every potentially suitable product available “to meet your client’s needs and objectives” and undertaking (and documenting in copious detail) a detailed comparison of them all? The networks are understandably terrified of a bunch of FCA fault-finders paying them a visit, picking apart a number of files and declaring that they (the network) has been allowing its AR’s to continue holding themselves out as WoM IFA’s but not following all the procedures deemed necessary to satisfy its requirements to prove it.

    When my network instructed me that, to comply with (its interpretation of) the FCA’s rules, even for small top-ups to large and long-established portfolios held via my favoured platform, I must undertake a funds-specific comparison of every platform on the market to establish that the one already being used “remains the most suitable to meet that client’s needs and objectives”, I thought To hell with this, it’s time (past due) to go restricted (in terms of just my preferred platform and PP provider). So I have and I’ve not looked back. I’m still WoM for all purely cost and rate driven stuff and I can still advise new clients who come to me seeking a review and appraisal of their existing arrangements with other providers, though now I need compare them only against the equivalent products offered by my chosen platform and PP provider instead of every other platform and PP out there, several of which, for a whole range of reasons (that I’d have to explain in wearisome detail), I wouldn’t feel happy about recommending anyway. Or I simply know hardly anything about them, bearing in mind that it’s impossible, for virtually anyone I suggest, to know all the features, foibles and wrinkles of every platform and PP out there. I know people who’ve recommended a certain platform that appeared to stack up on various criteria, only to experience endless headaches and frustrations that have led them to wish to God that they’d never gone near it.

    Under EU regulation there are no such things as IFA’s. You’re either tied or an Authorised Adviser and, under the latter moniker, you don’t have to compare and contrast every potentially suitable product on the market to justify each and every recommendation. All you have to do is present your Proposition, Costs, Risks and Tax and that’s it ~ which is how it should and could be here in the UK. Okay, for most people, an ISA is likely to be a better option than an Investment Bond, but it really doesn’t need to be much more complicated than that ~ does it?

    But sadly, under the FCA, life for us is immeasurably more complicated and costly. Hence we see those of more modest means disenfranchised from receiving quality advice and intermediaries endlessly bogged down in reams of compliance and bureaucracy by an over-prescriptive regulatory framework.

  3. I would absolutely agree with Rory here. Remaining independent does not have to be an onerous task. This is about having good processes in place and starting from a top down approach. We still see advisers using a bottom up approach because they think they have to consider everything in the market place. The FSA/FCA have said all along that suitability of the advice to the client is at the heart of this. This is about looking at what is suitable for the majority of your clients then also have a process in place that would/could work for outlier clients. This really isn’t hard.

  4. Julian

    Your lengthy post only goes to prove Mr Percival’s point. You are a network member and as you well know in my view never able to be truly independent. This now is recognised with the latest FCA statement that ”Independence is a state of mind’.’.

    You are and always have been under the mandate of your network and have to take what they say as gospel – which is not always the case. They have their own agenda and this does not always chime with the agenda of the individual.

    It is axiomatic that Independence and networks are oxymorons.

  5. I suspect “gold plating” in today’s litigious environment has more to do with the threat of FOS than deciding to do more than FCA requires.

    Client said in a meeting yesterday he considered independent to mean being able to advise across the range and select from any company possible. Didn’t expect me to demonstrate that every product, company or fund had been looked at on each occasion just that I had the ability to do so and that my research tools enabled me to filter effectively.

  6. goodness gracious 20th March 2014 at 10:57 am

    @ Julian
    Just become directly authorised, you can then become independent. No you don’t need to use every platform. No you do not need to investigate every product, if the risk or lack of transparency causes you concern on behalf of your client, just discount it as a group.

  7. Okay Harry ~ How little research do you feel able to get away with as the basis for formulating your recommendations?

    I know a DA guy who observes all the regulator’s requirements to the letter and what he tells me he has to do sounds very little different from what my network tells me I have to do.

    Are you absolutely 100% confident that if a team of FCA fault-finders were to descend on you and pick apart half a dozen of your client files, they’d be 100% satisfied with everything you’ve done?

  8. If the rules had been clear enough in the first place then none of this discussion would be taking place or required. The fact that people have interpreted in different ways or feel the need to be cautious is a reflection on the rules and the regulator respectively.

    But is it axiomatic that if you say something then it must be true? I suspect your assertion regarding networks and independence is an example of convenient doublethink…

  9. No Regulator will ever be 100% satisfied with anything, but I am pretty confident that I’ll be able to hang on to my Independent status.

    Anyway many make rather much of research. As Tom Lehrer so wisely points out – plagiarise, let no one else’s work evade your eyes, but be sure to call it research!

  10. Phil Billingham 24th March 2014 at 9:05 am

    One thought all. I do believe we have been mislead into endless hours of wasted time researching Fund A over Fund B. But no FOS ruling has ever upheld a complaint for those reasons. Complaints are about risk, communication and the use of inappropriate products.

    So have an Investment process, a clear Philosophy, good filters, and robust ways of communicating risk.

    More time efficient, safer, cheaper and better for clients

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