Less than three years since the RDR there is to be another review of financial advice. Here is my two penn’orth. At the moment anyone can call themselves a financial adviser. Even me (*ducks*). What I cannot do is call myself an independent financial adviser, as that term is regulated.
Of course, most readers of Money Marketing will be regulated financial advisers with an FCA number, which means you are regulated to sell regulated products, such as collective investments, pensions and loans. Tough rules determine how you can do that job and also cover you when you sell unregulated products.
But the rules separate out independent financial advisers from the rest, who used to be called tied agents, then multi-tied and now restricted. That is a useful distinction but it suffers from three problems.
First, some restricted advisers are not calling themselves as such. Okay, somewhere buried away on page 94 they will say they only advise on “x” or “y” and can only sell the products of “w” or “z”. But if you look at 1,000 websites you will not find the word “restricted” applied to themselves.
Independents are, of course, rightly proud of their status and use the word a lot. With this in mind, the only sign that an adviser is restricted is the absence of the word “independent”, often replaced with “comprehensive”, “distinctive” or “personalised”.
Any new regime that pitches independents on one side and restricted or tied agents on the other must demand full disclosure, such as “I am a restricted adviser” or “we have a team of 13 restricted advisers”.
That will help deal with the second point, which is that the FCA says it does not know and does not even collect information regarding independence. This means it cannot say how many of the 32,000 regulated advisers on its register are independent and how many are restricted. That must change.
Third, the label “restricted” in itself is confusing and needs changing. The present system allows a financial adviser to fail the independence test in two separate ways.
They quite rightly fail if they only sell the products of one or a small number of providers. If they do not cover the whole market they are clearly not independent and their advice will not lead to the best product for the client. They are not advisers but salespeople and should be avoided.
The second reason to fail is more contentious. A specialist in pensions, equity release or annuities (remember them?) can cover the whole market in their field. In specialising, they may well give the very best advice about the very best product in that area. However, because they cannot cover any other financial needs the customer may have, they are not allowed to call themselves independent.
When I advise that readers only ever go to an independent financial adviser I get complaints from specialist restricted advisers who may well be perfectly good at what they do and, they tell me, better at it than many general independents. However, they are denied that key descriptor.
This problem was created by the FCA and can easily be solved. Move this second category of whole of market specialist advisers into the independent category but make them say what their specialism is. What about “specialist independent pension adviser” or “independent equity release adviser”? They could then add the fact they are not able to advise in any other area or restricted in general insurance, for example.
But regulation needs more fundamental reform than fiddling with the present confusing system. At the moment, anyone can call themselves “investment expert” or “managing director, investment” without any qualifications, as long as they only sell unregulated investments.
Swathes of people, ranging from crooks to honest commission driven sales folk, can tell the elderly the great advantages of investing in wine, stamps, student accommodation or wind power. They can promise unachievable returns, use cherry-picked graphs of past performance, not warn that the past says nothing about the future and take unstated fees and hidden commissions.
My proposal is that anything sold as an investment producing a return should be regulated as collective investments are now. That means no commission and an obligation to be clear, fair and not misleading.
I would not just extend the perimeter to include investments either. My perimeter would enclose insurance, mortgages and loans, so all advisers or sales people would have to state they were independent or restricted.
I would extend some regulation to comparison sites too, so they would have to show clearly who makes what from every click and give genuine comparisons of all products, not just the ones they have a paid relationship with. Those relationships should be clearly stated on the first screen as well.
As I come to the end of my words, I can hear financial advisers around the country shouting: “Ha, I notice he says nothing about journalists being regulated.” Well, everyone who gives advice in a newspaper or on the radio is exempt from the rules about regulated advice.
The law is The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, article 54, which can also cover Twitter and social media in some circumstances. So it is not only journalists unregulated when giving advice in these public ways but everyone, including regulated advisers when doing that journalistic job.
And quite right too. Journalists are also regulated by the fact every word we write or say is in the public domain. That is true accountability.
Paul Lewis is a freelance journalist and presenter of BBC Radio 4’s ‘Money Box’ programme. You can follow him on twitter @paullewismoney