“Independence is a state of mind”. The FCA’s Rory Percival couldn’t have put it better in an interview with Money Marketing when outlining how firms can ensure they are abiding by the regulator’s independence rules.
The FCA has this week published examples of good and bad practice it has observed in a post-RDR review of the sector. It is keen to push out the message that meeting its independence rules is not as onerous as some have been suggesting.
As Percival says, independent advisers can use filtering processes such as panels, model portfolios or selected platforms as long as the advice is based around an open mind which considers all the options.
A “comprehensive review of the market” does not mean carrying out due diligence on every single product in the market or every provider but rather those that have been filtered down as potentially suitable.
The FCA says it believes some advisers are “gold plating” its independence requirements – possibly because of advice being offered by compliance consultants.
Caution from advisers around the interpretation of FCA rules is understandable, given the heavily regulated environment they are operating in, but hopefully this new guidance from the regulator will offer some reassurance. Although most firms observed by the regulator were working under the correct interpretation of the rules, it did observe some concerns about firms holding themselves out as independent.
Of the 88 independent firms the FCA looked at, it had concerns about 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’s concerns included worries about the use of platforms, advisers referring to other advisers within the firm without understanding the product themselves and advisers not being able to consider all retail investment products.
However, an important message from this guidance, particularly for small firms, is that continuing to be an IFA is not as burdensome as some vested interests in the market have been suggesting.
Research suggests the vast majority of advisers would like to continue to operate as IFAs long into the future. An efficient use of technology, solid business processes and an open mind over the best options available for your client are good starting points for ensuring your firm can continue to do so.