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FCA guidance on independent referrals offers ‘no consumer benefit’

Advisers have condemned new guidance from the FCA on how referrals interact with independent advice as “pointless” and offering “no consumer benefit”.

In a thematic review published last week, the regulator said advisers cannot call themselves independent where they refer to specialists, whether internal or external. The only exception is where advisers are referring cases related to occupational pension transfers and long-term care.

The FCA says: “Every adviser within a firm must be willing and able to advise on all retail investment products.

“However, it is possible for an adviser to seek expertise from another (either internal or external) as long as they are in a position to provide the final advice to the client.”

FCA technical specialist Rory Percival gave the example of a firm which always refers drawdown cases to a certain adviser as being in breach of the rules.

Until last week, referrals other than for pension transfers and long-term care had not been explicitly mentioned as affecting a firm’s independence.

Apfa director general Chris Hannant says: “A specialist within a firm can deliver better advice more efficiently and cheaply than an adviser who is not an expert in that area. 

“This clarification from the FCA is pointless and of no consumer benefit.”

Informed Choice managing director Martin Bamford says each adviser in his firm can advise on all areas but in practice chooses to specialise.

He says: “We make commercial decisions about whether to engage with new clients ourselves once we have determined the type of advice they are likely to require, or whether another planner within the firm would be better positioned to give advice.

“This clarification from the FCA seems to focus on defining independence through products rather than advice, which is a real shame.”


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

  1. “This clarification from the FCA seems to focus on defining independence through products rather than advice, which is a real shame”. I am afraid the thematic review on adviser charging is the same. There is an assumption by the FCA that the rules are sound and that firms should comply with them and the review will assess that – NOT whether the rules are fit for purpose.
    And if Money Marketing are interested I have a very good gardening project analogy as to why the FCA cannot handle advice and why the rules operate to consumer’s detriment. Notwithstanding the fact that you cannot comply!

  2. If this is true (which seems ridiculous) it’s completely pointless, meaningless, unrealistic and unhelpful to define independence is this way. The reality is all independent advisers can advice across the board but many choose to specialise in one or two key areas of advice. That doesn’t mean they are not independent and or offer restricted advice, it means they become more valuable to clients with particular needs and through specialising can deliver a better quality of service and advice. How on earth can that be perceived as conflicting with one’s independent status?

  3. “This clarification from the FCA seems to focus on defining independence through products rather than advice, which is a real shame.”

    That’s because independence is defined through a restricted range of products in the rules. It’s not even about ‘investments’ because you ignore shares, debt securities and others when deciding whether you’re independent.

    So let’s be clear. You are independent if you advise on a restricted range of investment products.

    Instead of ploughing on because of pride and political expediency the FCA should step back and look at this from the consumer’s perspective. They will quickly see that it’s an impossible situation and one which needs fixing.

    How about applying a little ‘behavioural regulation’…

  4. This clarification is NOT pointless. It shows clearly that if an investor wants specialist advice he needs to contact a Restricted Adviser. An Independent Adviser is forced to be a generalist jack of all trades providing advice on ALL retail investment products !!!!!

  5. Why doesn’t the FCA just stop making up stupid pointless rules and get on with sorting out genuine problems.

    If Rory wants an industry of IFA’s that advise in areas in which they have little experience or expertise then he’s going the right way about it.

    Any sensible person would understand that an independent adviser can’t know everything. Providing he is upfront with his clients when he comes to the limit of his knowledge and refers them to an independent specialist I cannot see what he is doing wrong.

    Until I read this I had believed that Rory Percival was one of the few FCA people who possessed a little common sense. Clearly not.

  6. Agree with Soren – much as RP normally seems the voice of reason, on this one I think it’s completely wrong.

    From personal experience – visited the Doc a few monthe ago about a dodgy sopt – she said I’m not sure, you need to see “G” (another partner in the practice) – he’s been specialising with the local hospital on these things. G duly pronounced and removed it himself as a minor surgical procedure.

    There was no question of the first Doc I saw saying I’ll give it a go myself…..and I’ve all the more confidence in the practice for it.

  7. The FCA can do no more than apply its own rules. The rule in question is COBS 6.2A.3, and is about how a firm (and not an individual adviser in that firm) can present itself to clients. The firm can say to retail clients that it is independent if the advice it offers on RIPs meet two conditions: it is
    “a) based on a comprehensive and fair analysis of the relevant market; and
    (b) unbiased and unrestricted.”
    The test, therefore, is not as the FCA seems to be saying, based on who does what, but on the quality of the advice as delivered to the client. Does the advice as delivered, satisfy the rule? The matter should be viewed from the client’s point of view: did he or she get advice which is based on a comprehensive view of the relevant market, and is unbiased and unrestricted?
    In my view, the firm can describe itself as providing independent advice if it meets that test, regardless of whether or not the individual advisers who put the advice together could individually claim to be qualified to do so on their own. That said, I suppose that the individual who actually sits down with the client to deliver the advice must be sufficiently qualified and experienced to know that that advice was properly independent and (equally important) suitable under COBS.

  8. From the FSA – UCIS – good and poor practice report, July 2010.

    Examples of good practice
    1. The firm researched and approved one UCIS, which its advisers were
    allowed to discuss with its customers. The firm had a limited number of
    advisers that were allowed and competent to promote and advise on
    UCIS. UCIS were included in their CPD and annual knowledge testing.
    The advisers had investment management qualifications, the technical
    knowledge, skills and expertise to provide portfolio advice services and
    recommend ‘non-traditional’ investments.

    “The firm had a limited number of advisers that were allowed and competent to promote and advise on
    UCIS.” is referred to as good practice.

    But now thats bad practice. Suppose that was then and indeed was the FSA not FCA, just feels odd somehow.

  9. There is (as always) a huge flaw in the FCA’s thinking. They are talking about whether a firm is independent or not and then basing it on what an individual adviser within the firm does or does not advise on.

    The FCA’s decision making process when creating the “rules” is flawed followed by it’s understanding of it’s own “rules” being flawed and finally, topped off, by the FSCS applying it’s own flawed understanding of the rules. Is it any wonder that firms/advisers haven’t got a clue what is going on?

    The FCA should act more like the police (probably a bad analogy but bear with me) create some simple straight forward rules to protect consumers and then spend 90% of their budget/time hunting out the bad guys. The good guys are always going to stick by the rules.

  10. Having watched a 12 minute interview with Mr Percival where he explains this topic in more detail, I think that the perspective of this report has twisted things slightly.

    Mr Percival says that you can keep the independence tag and refer to internal or external “specialists” as long as the original adviser signs off the work. How is this any different to referring it to a paraplanner to do the report? And wouldn’t the referring IFA want to know that the (internal or external) adviser the business was referred to had done the right thing by the client anyway? It doesn’t seem too onerous to me.

    For me, the key is being “willing and able” to advise. If you are not willing and are not able to advise in the “specialist” areas , then I would argue that you don’t have sufficient knowledge to call yourself independent. At the end of the day, the FCA presumably wants to know that all IFAs are competent and maintain CPD in the “specialist” areas.

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