The publication of CP121 by the FSA has certainly opened the
proverbial Pandora's box.
The debate has shifted up a gear with spin doctors on each side
decrying the other.
Before anything is accepted, the whole process of consultation is
going to take place. If, as many allege, the multi-layered
authorisation structures will happen in any event there are going to
be many questions asked before the industry gets to grips with the
The legal minefield that a multi-layered approach will open up is
mind-blowing. It does not take a genius to work out that the poor
consumer will be very confused about the new regime.
We already have “independent” mortgage advice provided by tied
insurance agents. Some chain estate agents cleverly confuse what is
and what is not independent.
I can only start to imagine the confusion that will be caused when
multi-ties, distributor and authorised advisers get to work on
implying independence without actually being independent.
The use of clever marketing by those who advise on a level below
independence is within a very short time going cause confusion.
Quite simply, many consumers do not care enough to understand
polarisation, never mind a system with multiple levels.
These are the key legal issues and problems
Clearly, the average agent will become a representative of one
provider who uses the products of another.
This makes the responsibility of advice and compliance that of the
provider, unless, of course, they use forms of delegation to drop it
back on advising practice.
What about prior advice, what about transferral of whole client
banks? Will this novate liability?
What about off-provider panel products brought with the clients of
the practice? Who will give the advice?
To switch to a tied situation is going to prevent further advice on
My concern is that there will be a sustained effort to “transfer” in
products to the provider. I can already see the roots of a mass
product churn as advisers switch products so as not to lose their
ability to advise on them.
The proposals are not clear enough to say whether there will be a
limit on the number of agreements. If there are then let me paint
A distributor sells a Skandia Isa, a Scottish Mutual bond and Invesco
unit trusts. Overall at a later date the whole portfolio is deemed
inappropriate. Who shoulders the responsibility? All the companies?
Equally? Do they haggle among themselves?
A lawyer's delight but a nightmare for a client.
Authorised financial advisers
Commission-only advisers. The stigma of the commission-only
salesperson is one that has dogged financial advisers for years. What
can only be described as deeply confusing is then compounded by the
fact that any adviser worth his salt is going to find ways to imply
independence without actually being able to say it.
For example, could you say “I can survey the whole market for you
independent from being tied to one company” or “I am authorised to
look at each and every product and see which is more suited to your
needs and objectives”?
This is madness as what value has being truly independent got if you
can run a horse and coaches through being an AFA to imply
independence? How many consumers will check this? Are we going to
receive a list of words we can say and one which we cannot?
How will this be enforced? Will the FSA have time to discipline firms
who take no notice and imply independence? The whole idea seems to be
littered with complicated legalities and potential for liability and
Independent financial advisers
The independent sector (that is the one that really is and is not
masquerading AFA firms) will need the following:
To be VAT registered.
Adopt a disclosure plus regime.
To think hard about capping prior advice liabilities.
To be clear on which market they are going to aim at.
The “defined-payment system” needs a lot more detail but it is my
contention that if the regime forces such an onerous disclosure
process it will actually do more harm to the independent sector than
What to do now? Let us be cynical and assume that the changes are
going to happen. You need to be very clear as to the way in which
your firm should go. If you are to remain as an independent adviser
then the conversion of your client to fees and offset arrangement
needs to start now.
If you wish to be an AFA, distributor or a tied adviser you will need
to be very careful about who you jump into bed with. The whole basis
of change is that you will have to deal with your existing clients,
decide how you deal with them under the new regime and then chose
very carefully who to jump into bed with.
This is going to be a very difficult thing to do. Insurers may flirt
with you and offer you the world but they are not doing this for
anything else other than distribution.
Providers are already flexing their muscles and getting their
chequebooks ready. Play hard to get, keep well informed on the
changes and act with your business objectives in mind.
If you have any questions for Money Marketing's legal surgery,please
email them to firstname.lastname@example.org.
Please note that neither Money Marketing nor our legal correspondent
can accept any liability for answers given to queries
Gareth Fatchett is principal at financial services lawyer Armstrong
Neal Financial Solicitors and a director of ProAct