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FSA says Ucis stance won’t have bearing on independence

The FSA says firms’ independent status will not be compromised by a failure to recommend high-risk products including unregulated collective investment schemes.

The regulator published its final guidance this week on independent and restricted advice under the RDR.

Firms offering independent advice will need to ensure advice is “based on a comprehensive and fair analysis of the relevant market” and that is “unbiased and unrestricted”.

The FSA says: “Where we have identified high-risk products and recommended they should not reach retail investors in the UK, a firm would not need to consider them for its clients to meet the standard for independent advice.”

In November, the regulator recommended that traded life settlements should not be sold to UK retail investors. The FSA is also planning to consult on new rules relating to the sale of Ucis later this year.

It says: “A firm’s independent status will not be affected if it never recommends these products because it deems them to be unsuitable for its clients.”

The FSA says it may be possible for a firm to identify that certain retail investment products are not suitable early on in the advice process and therefore rule those products out while still maintaining independence.

Firms providing restricted advice must explain how its service is restricted in writing, and provide an oral disclosure where the firm speaks to the client.

Panels can be used by firms to distil the product market when giving independent advice. However, independent firms need to be able to advise off-panel if that is in the best interests of the clients.

Lighthouse Group executive chairman Malcolm Streatfield says: “This is a useful piece of clarity from the FSA. There were a few people who perhaps were not very well informed claiming advisers would have to consider Ucis to remain independent.”

Key points from the FSA final guidance on independent and restricted advice:

  • Specialist advisers should not hold themselves out as independent in the broader sense, but may use wording such as “providing independent advice on ethical products”.
  • It is possible to exclude certain product types early in the process and maintain independence where it is clear those products are unsuitable for clients.
  • Failure to recommend Ucis and products identified as high risk by the FSA, such as life settlements will not compromise independence.
  • Exclusions in a firm’s professional indemnity insurance policy which do not cover specific products are not a valid reason for never advising on such products.
  • Regardless of whether a firm is independent or restricted, firms need to challenge cases where investment solutions generated by tools such as model portfolios are unsuitable for client needs.
  • Independent firms need to be able to recommend products off-platform or off-panel where this is best for the client. A firm needs to objectively consider a wide range of investment solutions before recommending a client use a discretionary investment service.



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