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Key points on FSA independent and restricted rules

The FSA has today published final guidance concerning the requirements firms need to comply with when providing independent or restricted advice post RDR. Here are the key points the regulator makes in the guidance:

  • Independent advice is defined as a ‘personal recommendation to a retail client in relation to a retail investment product where the personal recommendation provided meets the requirement of the rule on independent advice’.
  • The standard for independent advice is that the personal recommendation is “based on a comprehensive and fair analysis of the relevant market” and is “unbiased and unrestricted”.
  • 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”.
  • Examples of specialist advice that could meet the independent advice rules include advice on Islamic financial investments, advice to trusts and charities, and advice solely on annuities and drawdown 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 unregulated collective investment schemes and products identified as high risk by the FSA will not compromise independence.
  • Firms offering independent advice should not restrict advice to certain collective investment schemes, and should base selection on a comprehensive and fair analysis of the market for such products.
  • Restricted advice has to meet the same suitability, inducement, adviser charging and professionalism standards as independent advice, with restrictions disclosed in writing and orally where they speak to the client.
  • Restricted firms should not encourage clients to transfer to their restricted product set unless it is in the clients’ best interests.
  • Firms offering both independent and restricted advice that do not include “independent”  in their name can offer clients the choice between independent or restricted advice, or operate two or more trading names to separate independent and restricted advice arms.
  • 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.
  • 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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There are 10 comments at the moment, we would love to hear your opinion too.

  1. Simon Mansell 6th June 2012 at 3:56 pm


    A restricted adviser may not hold himself/herself up as “Independent” so how does this square with the many thousands of Limited Liability Co’s who have included “independent” in their title i.e. XYX Independent Financial Advice Ltd. As far as I’m aware once registered with Companies House, this name is protected by law and it would require an Act Of Parliament to remove this protection!

  2. No Simon, not an act of parliament, just an act of madness from FSA is all it takes.

  3. “Restricted firms should not encourage clients to transfer to their restricted product set unless it is in the clients’ best interests”. So its ok for Independent advisers to encourage clients to transfer if it is NOT in the clients best interest then? I think they need another rule here.

  4. Gillian Cardy 7th June 2012 at 8:38 am

    Check out Companies House for details on how to change a limited company name – £8 for web filing and £10 for paper filing … and their website says you can be required to change your name after incorporation if the company’s activities are misleading – I would say that purporting to offer Independent advice when you don’t is pretty misleading.

  5. If you are going to be in this business post 2012 and purport to act in the interests of clients, recommend suitable investments and protection products that meet the clients needs and expectations, there is only one clear and definite method of doing this, “Independent”

    Anything else is doing your existing clients a disservice and they will go elsewhere.

    The secret is not whether you are classed as an “Independent” adviser, but whether you have systems and procedures in place which will cope with the changes to the way advice is paid for. Having a validated client recording system which can record time spent on the clients financial planning and which can include such things as travelling time, time at clients home or with clients at office, what was discussed etc etc, is an essential part of any professional practice.

    We and I include myself in this, have become too complacent, sometimes give the impression we are cleverer than we really are and in concentrating only on product sales, may in the long run, devalue our business in the eyes of clients

    I have recently had my eyes opened about how todays new consumers wish to be treated and it has brought about a re-think about what I am, how I work and what value I am to my clients, 450 of whom (most mid market, middle income) have trusted
    my advice and service in the past and who I wish to continue to provide service to in the future.

    I will not be segmenting my client database as it is impossible to know what clients are going to need in the future, I may get lucky and one of them wins the lottery, seeking advice from their adviser as to what to do with their money (lol) You never know.

    Personally, I would like to win the lottery and sail away to far aways shores in a luxury yacht.

    Dream on ned, no harm in dreams, but in the meantime keep working.

  6. So, let me get this straight – if you consider all appropriate retail investment products you can call yourself Independent. OK, that makes sense.

    However, if you “specialise” you should not hold yourself out as independent in the broader sense (whatever that is), BUT may use wording such as “providing independent advice on ethical products”??

    So, not only a limited sector of advice but also a limited product range ?!!!

    Should be easy for the consumer to understand ! fair, clear and not misleading and all that….

  7. @Marty

    I presume that you’ve never quite grasped the concept of ‘independence’ equating to objectivity and impartiality.

    If an ‘independent’ adviser is neither objective or impartial, then they are not acting in the best interests of their client and are in breach of their duty of independence.

    However, by definition, a restricted salesman acts an agent of a single, or number, of product providers and cannot meet the test for independence.

    So the intention of the rule that you quote is to specifically prohibit salesmen selling a product that is more in their interests than the clients.

    Do you understand now? If not, I suggest that you take up selling double glazing …..

  8. Never mind ethical products, how about the bizarre concept of “independent advice on Islamic financial products”? These are products that no-one would ever use unless the client believes that he’ll go to hell if he doesn’t. (If that wasn’t the case, atheists would buy them.)

    If the adviser has a duty of care to consider all relevant products and information etc, doesn’t he also have a duty to consider the possibility there is no God?

  9. As I understand it, things like Islamic investments and ethical products are what are considered as relevant markets.

    You can claim independence within that relevant market if you consider all products within it, but cannot call yourself an Independent Adviser in the broader sense. The key being that in your disclosure and marketing you have to be clear that you are specialising in a relevant market.

  10. It’s worrying how many people at this late stage still don’t seen to have got their heads around the basic premise of all this.

    There has been truck loads of info and communication from the FSA, most of it seems to make sense.

    @anonymous above….your comments are somewhat naive, misinformed and uncomfortably biggoted. Your client base may not require Islamic products, but there are many out there that do service this group whose needs are largely driven by their religious and ethical beliefs. (slightly more complex than your understanding of ‘ they believe they will go to hell if they dont) The Islamic community is a vast one and growing all the time.

    I wonder what impression people like you give of our ‘profession’ to those outside who may scan these pages?


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