The FCA says “independence is a state of mind” as it reveals it has concerns around a number of firms who are describing themselves as independent when that may not be the case.
The regulator is carrying out a number of thematic reviews into how advisers are implementing the RDR, including charges disclosure, independent and restricted advice, and non-advised and simplified advice sales.
In its latest review published today, the FCA looked at 113 firms, 88 of which described themselves as independent. Of the 88 ‘independent’ firms, the regulator raised concerns about 28. Of the 28, six were found not to be meeting the independence rules, while the FCA had “serious doubts” over whether a further four firms were acting independently. The FCA would not comment on whether any firms had been referred to enforcement as a result.
The FCA says while most advice firms are using the independent labal accurately, there are issues around use of platforms, referrals to other advisers, advisers not being able to consider all retail investment products, and networks failing to ensure that all ARs are meeting the independence requirements.
Speaking to Money Marketing, FCA technical specialist Rory Percival says: “Independence is a state of mind. It is about keeping an open mind and considering all of the options.
“That is at the root of many of the questions we get from advisers about independence – advisers can go through a filtering process and use panels, model portfolios or platforms, but when sitting with a client advisers need to keep an open mind and give clients the right advice.”
The review includes good and bad practice examples and the regulator has also put together a video on its independence rules.
FCA head of investment advisers and platforms Clive Gordon says: “We have had feedback from advisers asking us to clarify the rules, and it is important to do so because we do not believe the independence rules are as onerous as some firms think.
“When we have said firms need to do a comprehensive review of the market some advisers thought they had to carry out due diligence on every single product or provider, but that is not the case.
“Once firms have appropriately narrowed down those providers or products that are suitable for their client, it is only those they have to carry out due diligence on.”
Gordon says there is no reason why small advice firms cannot comply with the independence rules, and many good practice examples came from small firms.
Percival hopes the review will clear up any adviser confusion over the rules.
He adds: “The intention is to make sure the industry is clear on our expectations and we will take any additional steps to make sure that happens.”
• One small firm developed an investment panel by reviewing the whole market and filtering products down using research tools. The firm considered which products to use at a quarterly investment committee, and then undertook appropriate due diligence on those products to come to its final shortlist.
• One firm used a panel for the majority of its recommendations, which had been constructed by reviewing the whole of the market. The panel contained a wide range of products and providers that had been pre-approved. Advisers also had the ability to recommend ‘off-panel’ solutions, which were subject to pre-sale checks and minimum research and due diligence standards.
• The review found some advisers are referring clients internally to other advisers for certain types of business, and so are not providing advice on all products. FCA technical specialist Rory Percival says: “An adviser might never have advised on a drawdown case because they are always passed off to somebody else. Advisers need to be willing and able to advise on all products.”
• One firm was adopting a single platform and not considering off-platform investments or other platforms.
• Firms can use model portfolios to filter down funds, but the regulator would be concerned if in practice they were restricting themselves to the portfolios.
• One firm had designed a single model portfolio it felt would suit all of its clients as it felt they had similar needs and risk tolerances, and did not consider any other investment solutions. The FCA says the firm had restricted its advice by not considering other options for clients when appropriate.