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FCA: Firms offering simplified advice can’t be independent

Firms offering a simplified advice service cannot call themselves independent, says the FCA.

In its guidance consultation on simplified advice, published today, the FCA says simplified advice falls into the category of restricted advice.

Therefore, it says a firm providing simplified advice and independent advice must label its firm restricted as a whole. It says this means it would inappropriate for such a firm to include the word independent in its name.

The paper, which aims to clarify the boundaries of simplified advice, sets out a range of sales options. For each one, the regulator sets out qualifications that are required and whether suitability requirements apply.

It says for simplified advice and for limited or focused advice, consumers have access to the Financial Ombudsman Service in a way that “recognises the nature of the service”.

The FCA says it has been told by firms that threat of action by the FOS is a barrier to developing simplified advice models.

But it goes onto quote the FOS website which says it already judges the appropriateness of simplified or basic advice “in the specific context in which it was given”.

The FCA says limited and focused advice would involve a customer approaching a firm with a specific objective, for instance to find out what they should do with their existing with-profits policy.

It says the firm would need to explain to the customer that their other financial needs will not be addressed.

But the regulator says a “duty of care” remains, so if an adviser delivering focused advice realises the customer has a family and no protection policy, the adviser would be expected to highlight that need to the customer.

The FCA says it has also been asked by firms whether a customer’s perception of whether they have received advice or not would be used by the FCA and FOS to judge if the firm has given a personal recommendation or not.

The regulator says that while the customer’s perception of the service “is very important”, it is feasible that the customer will not always be correct in their understanding.

This appears to contradict statements made by FCA technical specialist Rory Percival, who warned in April 2013 that execution-only services could be subject to advice rules if customers believe they have received advice.

He said: “One of our lawyers, within what was the FSA, said to me, ‘If it looks and feels like advice, it probably is advice’, and that is actually quite a good test.”

The FCA says firms have also raised concerns about whether they could be held liable for a customer who uses their simplified advice model, receives a recommendation to purchase a product, but then buys the same product elsewhere on an execution-only basis.

The FCA says firms concerned about this situation could include a provision in its terms and conditions that limit its liability if the customer does not buy the product through the firm.

But it says this would only relate to the firm’s general, non-statutory liabilities and not its liability for a breach of Cobs rules.

The regulator also says where a firm sends factual information to its customers without regard to their specific investment positions, for instance to notify that a fund manager is changing, that would not constitute regulated advice.

But it says factual information may constitute regulated advice where it is provided because, in the firm’s view, the customer’s portfolio could be improved and the information contains an implied recommendation.

The FCA adds there is some evidence that one of the barriers discouraging customers from accepting more responsibility for their decisions is “impenetrable” disclosure documents.

The regulator will publish a paper towards the end of the year identifying how it can help firms disclosure information in a more customer-friendly way.


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There are 11 comments at the moment, we would love to hear your opinion too.

  1. Another brilliant strategy!

    So now any firm that decides that it might want to help bridge the advice gap that RDR has created (because the banks have orphaned them) won’t ,because they will have to give up their independent status.

    Good luck orphaned clients sitting in high charging share classes only benefiting the fund managers.

    Another great consumer outcome!

  2. It is logical. How can a simpleton be Independent – it just wouldn’t work.

    Anyway since when was anything to do with Financial Services simple?

  3. I’ve lost the will to live. I no longer understand a word the FCA says. Leave us alone, to advise clients who wish to pay for advice. For those who do not want to pay, or cannot afford to pay, for advice beef up the Citizens Advice Bureau that does an excellent job (informed, unbiased and reliable). Too much for a Friday afternoon. TGIF

  4. @Harry
    The question is whether an independent can do a simpleton’s work, not the other way round.

    If I’m ‘independent’ (i.e. offer a restricted range of investments) but decide to offer simplified advice as well, why should that decision affect what I can call myself?

  5. @ Grey Area

    Have I missed something here?

    How can you be independent and offer a restricted range?

  6. @Harry I can see Grey Areas point. As an example we operate several GPPs for employers. The restricted choice on a direct offer basis is the employers GPP and yet we are an Independant firm and the employers who enter have NO contract with us and vice versa unless they ask for and pay for a full fact find and advice. Does that make us restricted now? I think not.

  7. Harry Katz | 11 July 2014 5:39 pm

    @ Grey Area

    Have I missed something here?

    How can you be independent and offer a restricted range?

    No I don’t think you have but this sums up our industry at the moment.
    Just like Sesame calling it’s proposition ‘whole of market restricted’. Yup, truly independent.

  8. I fail to see the logic in banning an IFA from offering simplified advice as an optional, lower cost alternative to full advice. Where’s the harm? Wouldn’t this help bridge the advice gap? Then again, it’s becoming increasingly difficult to fathom the logic of so much of what the FCA spews out with little, if any, consultation.

    The real agenda, I suspect, is to force more and more IFA’s to switch to restricted status. Increasingly, independence will become the exclusive and expensive preserve of firms in which every single adviser must be chartered.

  9. Well that was as clear as mud.

  10. @Harry

    To be independent you have to advise across the full range of Packaged Retail Investment Products (PRIPs) ONLY – that’s the definition. You don’t have to advise on equities, corporate bonds, derivatives, IHT, pension transfers, long term care, etc.

    Thus you can be ‘independent’ and advise across a restricted range.

  11. Question – if a client can complain to FOS or FSCS having received bad simplified advice, would independent advisers have to fund the FSCS and FOS levy for their activities? Can we have a product/advice levy please…..

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