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Martin Wheatley hints at tackling indy/restricted confusion

Martin Wheatley 480
FCA chief executive Martin Wheatley

Financial Conduct Authority chief executive Martin Wheatley has hinted the regulator may look to tackle confusion over independent and restricted advice.

In an interview with the Financial Times, Wheatley said the regulator had received negative industry feedback over independent and restricted advice definitions.

He said: “We certainly had quite a lot of complaints to us, particularly from the stockbrokers, who say people know what we do and the fact we do not offer mortgages does not mean we are not independent.”

But Wheatley says typically any changes to the definitions would not take place until the post-RDR implementation review in two years time.

He admitted providing clarity at an earlier stage around how the RDR would impact the platform market, particularly the potential extension of the rebate ban to execution-only platforms, would have been “nice to have wrapped up earlier, but we could not.”

Wheatley added: “The aim is to remove bias. That is clearly what we have set out to do. It can get a bit more complex in the platform space and so we are spending a lot of time talking to the providers, trying to come out with a proportionate model that works.”

The platform paper is expected in the next few weeks.

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Comments

There are 23 comments at the moment, we would love to hear your opinion too.

  1. Martin Bamford 2nd April 2013 at 8:39 am

    Some interesting comments in this interview with Martin Wheatley.

    Firstly, hopefully he understands that not offering mortgage advice does not impact upon independence, as mortgages are not a retail investment product?

    Secondly, it’s good to see him hinting at a level playing field between advisory and execution-only services.

  2. Martin,

    Congratulations on the launch of IC Direct – your execution only arm. I do hope that customers of this non-advised commission earning entity do not end up thinking they have received advice.

    You know the sort of thing I mean.

  3. As far as stockbrokers are concerned they have a very valid point. I always thought labelling them as restricted was lunacy. As I said at the time; when I go to my dentist I don’t expect him to be a proctologist.

    However when it comes to our side of the fence I do hope he will not further dilute the concept of independence. I’m afraid unlike Martin I have not had the time to read the full speech, but whatever he intends for execution only I do hope it is made plain that this does not involve advice and is entirely a DIY operation as far removed from Independent advice as Shank’s Pony from a Ferrari.

    Likewise for restricted, it would just be simpler to have Independents and the rest – as we had in the past. Just as long as it is recognised that Independence is the pinnacle.

  4. If stock-brokers stick to advising on or dealing dealing in individual shares they won’t have to worry their pretty little heads about the definitions of independent or restricted …
    And if they stick to discretionary fund management then it’s not a personal recommendation and they don’t have to worry their pretty little heads about the definitions either.
    So stick to discretionary (or execution only) and stop making trouble where there is none!!

  5. @ Harry

    The problem was, and remains, the definition. It’s not a surprise, it was just too late to deal with properly by the time the FSA had realised they’d mucked up this bit of RDR.

    Indeed it would be simpler to have independents and the rest but what would your definition be? That’s the rub…

  6. Independent, the definition – “Not influenced or controlled by other: Thinking or acting for oneself”. There, you have it in one. Why try to change things when its already written down in plain English? The FSA tried but could not find bias – they admited as much. They then redid their research and found that consumers perceived that their COULD be bias towards commission. Very easy when you word the question in such a way so as to elicite the response you want. Lets hope that FCA do have a modicom of sense and dont join the inertia train. Two years before they look at it? By then we will all be (The 57 advisers that will be left by then) in trenched in the “new definitions” that the outcome will probably be – well we have lived with it for two years and it seems to work so lets just leave it. In the meantime lets just hope the FCA do not turn out to be the numpties that their predecessors were.

  7. @Simon Kershaw

    Thanks, Simon. What commission though? IC Direct is working on an adviser charging basis, with our fee fully disclosed to customers. We will be going to great lengths to ensure that customers of the service do not think they are receiving advice.

  8. And meanwhile, while we debate this whole ‘cluster ***k’ because of the pointless abandoment of polarisation which was clear to everybody, the savings gap grows.

  9. Sorry Marty. Same numpties.

  10. “Independence matters to you because it matters to us”

    “…we advocate the benefit and value of independent advice to consumers…”

    So the IFA Centre website proclaims. But there’s no comment about what independence means from what I can see. Is it just a blind acceptance of the FSA’s product based definition or something more?

    Do tell…

  11. RegulatorSaurusRex 2nd April 2013 at 2:58 pm

    If I wasn’t extinct I would ban anything that isn’t independent.

  12. I am waiting for companies house to explain why the listing for the FCA despite having the same company number as the FSA, PIA and SIB only has a previous name as SIB, is this commission by error or intent. If intent, WHY?

  13. Wheatley’s sophistic response is a gruding acceptance that they (FSA/FCA) got it totally wrong in respect of providing clarity.

    The purpose of RDR was to ensure transparency, objectivity and professionalism. As mentioned by previous commentators, independence can be defined as objectivity that is devoid of any financial conflict of interest. By definition, anything else has the potential for conflict or is promoting a limited range of options.

    It is blindingly obvious that polarity worked, particularly from the consumer’s perspective. I accept that not all IFAs were truly objective, however, now that commission has been abolished and standards improved – why can we define advisers as either independent or non-independent?

    It stands to reason that anyone wishing to be independent would have to satisfy the objectivity test and why would anyone who isn’t able to achieve this object – unless they were intentionally seeking to mislead their prospective clients?

  14. @ Grey Area (and others)

    You make perfectly valid points and the Regulator’s definition seems to focus unduly on product.

    However my own definition may not please many. Marty actually has the essence – “Not influenced or controlled by other: Thinking or acting for oneself”. In addition I would say that a true independent has to be able to be something of a polymath. It is no good advising on investments, without knowledge of tax and life assurance. Pensions are basically an investment with knobs on and mortgages form one of the largest single purchases that most people make in their lifetime.

    Being able to set your own tariff band and not be subordinate to layers of higher authority (apart of course from the Regulator!) is also a defining attribute of independence.

    If you take the definitions to their logical conclusion it would seem that true independence is going to be the reserve of the smaller intermediaries by default. The larger organisations need to retain control and they also (because of their much higher unit costs) have a commercial imperative to go restricted. Moreover looking at the charge rates of some of the big guys it would seem that many smaller intermediaries will be running rings round them.

    I know that one quotation can beget another, but I find the most apposite a translation from Göethe:
    You must be a master and win,
    Or Serve and lose

  15. RegulatorSaurusRex 3rd April 2013 at 5:00 pm

    Mr Katz is one of those who wanted all this confusion, can you tell us why?

  16. @RegulatorSaurusRex

    To be candid I didn’t actually canvass for it, but what exercised me were those who were patently not independent passing themselves off as such. You had the obvious culprits. In their case it might even have been considered flattery, as obviously they regarded Independence as a valuable commodity – otherwise why try to hoodwink the public.

    Then you had others who fondly believed they really were independent, but were in fact nothing of the sort. Working off restricted lists and panels (that often paid the highest commission) not being able to look across all aspects (i.e. giving restricted investment advice, but having for example no clue about pensions). All this allied to (in too many cases) scant technical knowledge.

    What is wrong with the current regime is that the definitions of those who are not independent are confusing to the public and too easily circumvented, with the use of weasel words such as unbiased. For those of us who have made considerable efforts to comply with the definition of independence this blurring of the distinction is most irksome.

  17. So we are we where we are, RDR is here warts and all. FSA has gone and FCA arrived. Two lines and three, three letter anacronyms already.

    I had my first two clent reviews of our new business year yesterday and today and they sapped the life out of me.

    I’ve been talking enthusiatically to clients about RDR for at least three years and they actually don’t care. I went through our post RDR client agreement, terms of enagement, what independence means, agreed remuneration as opposed to adviser charging, increased qualifications standards, VAT and in response, in as many words both said, this is is fantastic now go home and get a life because that’s what they were going to do.

    We’re now offering vodka shots rather than a menu of coffees and teas. We then costed out our stationery and compliance bill as we morph from FSA to FCA. Thoughts to self following this; is vodka for breakfast bad or is the stationery trade where it’s at?

  18. I agree with Harry, especially about small firms, mortgages, LTC, Er, home reversiins etc. Largest purchases for Joe average and along with life cover an essential part of any financial planning, hence why despite not having arranged “product” for any of these items for about 2 years I have the qualifications and keep my cpd up to date. Join IFA centre and let’s help as many as want to remain truly In depend at and encourage the FCA to help clarify the restricted distinction. There is nothing wrong with being restricted, there are different advantages, but the distinction must not be allowed to be blurred.

  19. Back to the original article and statement from MW.
    It is too early to say whether consumers (and advisers) will learn to work with the clarified definition of Independant and Restricted. I say clarified as to some extent nothing has actually changed as far as the dictionary definition is concerned and it is that we should be using as a route to explain why we are either Independant (and its limitations) or Restricted (and it’s disadvantages v advantages for BOTH parties)
    I serioulsy thought about becoming Restricted and right up to the last minnute with regard the SRA’s decision to allow solicitors to refer to restricted advisers I was in mixed minds. I decided to remain Independant.
    My point is that my clients have been prepared for nearly 4 years that I MIGHT become restricted and I have spent that time making sure they understood the distinction between the two.
    This was helped by the fact as a directly regulated firm, we were allowed to speak to the FSAs firm contact centre directly rather than through a network who has it’s own aims and filters of what the FSA say.
    WE clarified with them in 2006 that the IDD whilst including mandatory information only had to be in a mandatory format IF you wished to use the Keyfacts logo. So we used the mandatory format, removed the logo and inserted an explanation of the deposit taking limit for the FSCS, which meant when the banking crisis hit any client who had balances in excess of the FSCS £32,500 (at the time) had done it contrary to our advice to spread across banking licences.
    This then meant that we knew to check with the FSA re the Indie v restricted title change and hence our IDD has shown the choice between Indie, Restricted and NO advice since 2009. We have been explaining this difference since then so that our clients were focused more on what service we were providing and to be quite honest most of them DO NOT CARE whether I am Independant or Restricted, I DO.
    I will remain Independant all the time I believe it is to the benefit of my clients WITHOUT causing too mny problems for me. Suggest if you are waivering either side of the debate you speak to Gill Gardy at IFACentre or Harry Katz (ex AIFA) who have both made their position clear.
    APFA who I am not (currently) a member of need to get their act together if they are to represent both INdie and Restricted and start making the case for how to explain ones proposition as any adviser who goes from Restricted to Indie needs to have thought out how they will explain this to an excisting client if they cross the fence later.
    Those ex NatWest Independant Financial Adviser from 1988 to 1992 had to do this in 1993 when NatWest set up NatWest Life and forced 90% of their advisers to tie. Foruntaley I become an IFA for them in 1992 knowing they were to tie in 1993 so from day one I was preparing the ground.
    IFAs had nearly 5 years to prepare their ground and any who didn’t only have themselves to blame I am afraid.

  20. Last thought – Both Neil Liversidge and Alan Lakey (despite what Nic C says to get readers comments) are good guys and both on the APFA board so perhaps they could both appear on Paul Lewis’ money box at the same time as someone from HL sdo each can explain the advnatages and disadvantages to the consumer of each route. That wahy the consumer may be able to decide which suits them at different times in their lifecycle as it can change.

  21. Sorry last last word (unless Harry or Martin reply) as I need to get on with studying for my JO7 exam next week….
    I am currently a one IFA firm, hence an IFA at an IFA firm. I have admin staff and will either develop one or more of them as an adviser OR merge with other IFAs.
    If I do that I would look to restructure the firm as a RESTRICTED FIRM as a firmn can have both restricted and Indenedant advisers within it I believe.
    I would remain Independant and the trainee advisers and certain other parties would be restricted,
    Initial meetings would be with an IFA who would also build Lifetime Cashflow Plan and select providers for products & services for the next 5 years for the client to use.
    The client would then be given the choice of an annual review with the IFA OR an annual review with the restricted adviser who would be restricted based on what had been selected until a 5 year review with the IFA OR until the client wished to ask and pay for an Independant Review.
    Personally I think this is where the IFA and Restricted debate should be going.
    The need for Independant rather than Restricted advice is focused around certain life cyle areas, i.e. initial review, major life changes including birth, retirement and death. Much of teh inbetween could be more cost effecitvely provided to the consumer on a restricted model provided the client knows they are not having the restriction forced upon them by the adviser, they are choosing to do it purely due to cost/timne restrictions the consumer wishes to place on the adviser or firm.

    Would be interested to hear Martin Bamford, Harry Katz, Alan Lakey and Neil Liversidge’s comments on this.

    As you can see I am planning ahead to make sure I have worked out the best way to do this for my clients and I if we expand. That after all is what our clients pay us for i.e. to plan for the future rather than react to what is forced upon us.

  22. Scott Taylor-Barr 4th April 2013 at 9:41 am

    Is it just too simplistic for the regulator to amend our disclosure to a choice of either:

    “I am an independent adviser and have access to the whole of the market for XXXXX advice.”

    OR

    “I am not an independent adviser but instead work from a panel of XX providers for XXXXX advice.”

    The public could then see what they are getting and it would also solve the other issue of firms that access a panel of 2 providers being labelled as the same as those that access a panel of 40.

    It all seems fairly straight forward and plain English to me; or am I missing something here?

  23. @Scott – I actually think the Independant or Restricted and explain your restriction is fine, it just needs time for firms on both sides of the divide to settle down and learn how to explain their restriction.
    Some may say, but then I would say that as I remain Independant, but I woudl still say the same were I restricted, I would just learn how to explain my restriction in a clear, fair and not misleading manner.
    Bearing in mind most people have a record facility on their mobile phone now, any restricted adviser who is NOT explaining their restriction clearly is likely to be in deep do-do when the recording ends up in the public domain just as any adviser who purports to remain Independant and isn’t truly may get jumped on likle a ton of bricks by the FCA after about June once they have doen their thematic review. Before then i would hope the FCA give a little grace for firms models to settle down and for consumer understanding of the terminology to catch up.

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