Over the years I have written to successive bosses of the regulator to ask just how many of its employees have ever started a business from scratch and have subsequently run it successfully at a profit for at least five years. As I have never had a reply from any of them, I suspect the answer has always been “none”. To be fair, I have not yet asked Martin Wheatley but it is probably time I did.
What prompts this is the FCA’s latest convoluted definition of independence. As Peter Hamilton recently pointed out in Money Marketing, the FCA appears not to understand its own rulebook. He also surmised there appears to have been no consultation with independent firms but that is not quite the case. There has been to my certain knowledge at least one very brief moment of consultation and it happened at a meeting I attended some months ago.
The discussion was held under Chatham House rules so I cannot attribute remarks to any specific person but an FCA representative was present. Anyhow, up came the topic of independence and I ventured my definition: firms that can only recommend in-house fund-of-funds offerings plus, say, protection from a limited number of companies are not independent. Those under no such constraints are willing and able to refer clients to those better qualified to undertake certain tasks, whether they are advisers in their own firm or, with another firm, are independent.
Simple as that. What could be more independent than to say: “She can do this better than me – go see her”? More importantly, what could be fairer or more beneficial from the client’s viewpoint? Not one person in the room disagreed.
Simplistic and unrealistic
The FCA’s definition hinges on willingness and ability to advise on any and all retail investment products. That is over-simplistic and unrealistic. It is perfectly possible an adviser might be happy to run a £1m portfolio of collective investments but at the same time might prefer to send the client down the road to another adviser better able to run a SSAS, if one is needed.
Returning to my point as to whether the FCA employs anyone with actual entrepreneurial experience, I ask this because sadly it causes me to question whether it has any idea what it takes to run a business.
Most of the argument around the word “independent” stems not from whether firms can use it but by the fact that “restricted” is the mandated alternative. I am independent but I sympathise with those on whom the restricted label is forced when they are whole-of-market and focused on their chosen area of expertise. “Restricted” has no positive connotations and no marketing professional would ever choose to use it but civil servants have forced it on a large number of the advisers who pay their wages.
Here is a compromise. Redefine “independence” as I have outlined above, checked if necessary by reference to business transacted. Let firms which qualify use the “i-word” if they wish. Prohibit its use by all others but do not force them to bill themselves as restricted either. Financial adviser or wealth manager should be adequate. The European consultation on Mifid II suggests a definition of independent much closer to what an ordinary person would consider independent and that is my benchmark. What’s yours, Martin?
Neil Liversidge is managing director of West Riding Personal Financial Solutions