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Neil Liversidge: The way to redefine independence


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



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There are 10 comments at the moment, we would love to hear your opinion too.

  1. I’m often told that I fight the wrong battles and should focus more on those that are winnable.

    Another viewpoint is that wee should only fight where it actually matters and I believe the distinction once afforded by the title ‘independent’ is no longer worth fighting for.

    Truth is that the regulator has made a total mess of what could so easily be a simple matter. The fact that they remain committed to such a stupid and convoluted distinguishing process speaks volumes.

    This nonsensical methodology means that they are guilty of crimes that advisers would be castigated for – failing to treat consumers correctly, inability to easily set out a descriptive process, failure to ensure that consumers understand the message, et al.

    I decided long ago that being a restricted whole of market adviser enabled me to continue doing the same job as I had previously carried as an ‘independent’. Difference is, I don’t need to justify myself to somebody who is a slave to process and box-ticking.

  2. My view has always been that the public perception of “independent” starts and ends with the ability to use any provider in the market.

    It seems also to me to be self evident that within the industry it is more important what the clients think than what the Regulator thinks.

    A pity; the FCA came into being with not a little goodwill available following the massive shortcomings of its predecessor. Bees in someone’s bonnet at the FCA, like the definition of independence as an example, and the recent Wheatley comment about IFAs sitting on their hands over the RDR, are squandering that goodwill.

  3. The FCA is wrong in their assessment of a Financial Adviser – and completely wrong trying to change and fudge the issue surrounding Independent Financial Advice. It is really simple and Independent Financial Adviser – should not be tainted by any interference – whether a sponsor, or any inducement – and represents the client first and foremost – and uppermost. The services an Independent Financial Advisers may call on may come from a variety of sources – and after gathering those who are competitive he or she will decide on the most suitable product or suitable advice for the clients best interests. An Independent Financial Adviser . . .finds the . . . .Services to suit the Client !
    A restricted adviser – a Tied Agent ( as he or she is restricted by their sponsoring employer – where savings in cost or services are made ) to the products or services of their sponsor. In many cases this may be their ” servicing group e,g Tenet Group. These agents represent their company / sponsor first and foremost and have a duty to their sponsor first and foremost . . .and have to find the Clients to” Suit the Service “.
    There is nothing wrong with either service . . . .and both provide very good outcomes for the consumer. The Regulator having failed to Regulate over decades . . .must surely realise that changing the names and titles to fulfil his Vanity Projects and Claim ” it was his idea “, are not good for consumer outcomes and he has made a Pigs Ear out of the Financial Services industry – with reducing adviser numbers reducing volumes of business – and the Entire Loss of Trust in providers as a result. By complicating all these different aspects = people get fed up and go elsewhere – leaving the industry to self implode . . . .providing another Kodak Moment . . . .. !
    I know ! What about simplifying Pensions ? that would provide great benefits ? or rather than increase National Insurance – let us force people to save into a pension scheme – with product providers who do not care and who we CANNOT TRUST .

  4. Alan, Neil’s point is that if you can’t describe yourself as independent you must describe yourself as restricted which in marketing terms has all the cachet of an ASBO, a view I have expressed previously. The FCA have already confirmed that it is unacceptable for a firm to describe itself as “restricted whole of market” so that is not an option.

    I disagree that the handle Independent Financial Adviser is not worth fighting for. It is remarkably widely understood by the public as is the acronym IFA. This brand has stood my own business in good stead for close to 30 years but I have had to stop using it because my firm offers both an independent and restricted services. Dick Carne

  5. Whilst I agree with Neil’s definition of independence, there is also sense in what Alan Lakey says about only fighting battles that are both right and winnable. So although I agree with Neil, maybe we should focus on trying to win the battle to allow firms to remain independent if advisers can make client referrals to colleagues in the same firm where their colleague may have superior experience in certain areas. This would mean that each individual adviser would be required to have a generalist understanding and appreciation of every area of financial planning so that in Rumsfeld language “they know what they don’t know”. But if there is someone internally who has greater practical experience of say long-term care or say EIS investment then the generalist adviser could give the client the choice of being dealt with by a colleague with more practical experience of a specialist area. It seems strange that this principle can apply with pension transfers and yet the FCA are trying to suggest that this cannot be extended across all areas where there is specialist knowledge or experience required. If a legal firm were required to operate under the same generalist principles how would a client feel if the same person who conveyed their house purchase then turned up to represent them when they are on trial for murder? Strange logic from the FCA, probably because they don’t think about the commercial and common sense reality of taking positions which are not really defensible.

  6. Douglas Baillie 27th June 2014 at 3:53 pm

    As long as the FCA rules remain open to selective and subjective interpretation, all adviser firms trying to act sensibly, honestly and properly, in an compliant manner leave themselves open to retrospective criticism.
    Perhaps the FCA should take aclose look at another Goverenment Authority that has been around for a long, long time who are also responsible for enforcing compliace with regulation.
    That is the Civil Aviation Authority (CAA), who licence Air Operators from the mighty British Airways right down to one man band single pilot operators who fly pleasure flight for ‘hire or reward’.
    Every air operator, no matter how small or how big, must have an Air Operators Licence (AOC) that complys fully with the Air Navigation Order (ANO).
    Inspectors from the CAA (usually retired airline pilots or air traffic controllers and licenced aircraft engineers, who actually know ahat they are regulating), visit the AOC holders and approve their operations handbook to ensure that the operator is complying with the ANO.
    Subsequent CAA vists are then very simple and easy to manage as they are based on known rules carried out by practiced inspectors. Furthermore the CAA actually invite comment from AOC holders to say how safety and rules complaince could be improved.
    And guess what? This exchange between pilots, air traffic controllers, and engineers and operations staff happens all the time without fear of misinterpretation or reprisals, and as a result, our airspace is a much safer place.
    As an ex airline pilot myself, I know this is true, and I take my responsibiliyies towards my clients’ financial affairs no less seriously than when I am personally responsible for the lives of my passengers.
    The FCA may have a lot to gain from lokking at how the CAA operate compliance.

  7. I agree 100% with Neil on this rather than Alan. Ironically for me, the Independance battle is more important than the Longstop battle in the SHORT term.In the Long Term it is the other way round.
    I am not wedded to Independance, I can see advantages to being tied (I agree re it should be IFA or just adviser and then explain the nature of your restriction, NOT introducer yourself as restricted before the nature of the restriction.
    People reccomend PEOPLE, not the type of adviser and if an adviser with a limited range who the CONSUMER likes can deliver the services the consumer believes they need at an acceptable price, so be it (why SJP are so successful). I changed the word acceptable from FAIR when I saw what I had written re SJP 🙂

  8. What ever happened to the ” KISS ” formula, Keep it simple Stupid ! Clients and some advisers have do not wish additional complications – or spend more time with clients – to ” explain their status “. Such time is a waste of each their time – and whilst Martin Wheatley, spends his time ” slagging of IFA’s “, he could do better spending his time defining the service of an agent. Is the adviser as agent for his client ? I.E. an Independent Financial Adviser ) or, is the adviser an agent for his sponsor or multi sponsor ? a Restricted Adviser or Tied Agent. These are described in Law under Law of Agency and help should be sought by Mr Wheatley prior to issuing insults, or COBS or FCA Rules, or ” guidance”.
    The issue is that Restricted advisers want to be Independent or be ” seen as independent “, for their own ego rather than that of Client Benefit or ” outcomes “. Clients go to an IFA for whole of market and Comprehensive . . . .Independent Financial Advice. Restricted advisers advise on their restricted services – whether by product or area of expertise ( and these advisers may be more experienced and trained in their area of expertise, as a result of this focus ). For the FCA to ” redefine the status – is a waste of Tax Payers and IFA money – with the “nauseating numpteys” ( administrators without commitment – for clients or the industry ) ) who do not know the industry, or in many cases understand the industry. As a result of their strategies the FCA has restricted the numbers of advisers ( now only 20,000 and reducing ) . . .to those who are supine and – will pay the FCA ” Protection Money “, often referred to as Fees – to remain in business, under the chaos of Cameron

  9. Christopher Petrie 30th June 2014 at 11:31 am

    National & Networks hate the “Restricted” moniker as it gives a competitive advantage to IFAs. IFAs like it because of the same reason.

    APFA is funded by, and run for, National & Networks.

    Ergo, APFA is campaigning to get the “Restricted” name removed.

    APFA don’t represent IFAs – they actively fight on behalf of our competitors. That’s why I shan’t be joining their organisation.

  10. There is nowt wrong with being a restricted adviser ! It can be a major benefit – where the FCA has driven out Independence by increased costs and other trade restrictions – such as the huge reams of administration needed . . . for the FCA – who have shown they neither read the information – just collect it ( I assume to cover their backsides, for their backsliding – when another . . . Key Data . . . comes up ? ) . Secondly, you do not require a Level Six ( or Four Qualification ) – to provide advice on the sale of a life assurance policy – or an ISA – or indeed the most complex of products – a Pension under Auto Enrolment . Someone needs to get a grip of these spotty faced oicks at the FCA Boards – or ask them to complete a PFS Diploma . . .so they have a minimum standard of knowledge . . . . before they give advice on ” How to Run Your Practice “, ” How to treat customers Fairly ” or How to invest for Growth to reduce tax – and to increase wealth – rather than their claims of ” Taking Risk out of investing “.. Surely Risk is an integral measurement – of opportunities available . . .after all we cant all have a Government Sponsored Gilt Edged Pensions Scheme paid for by the Tax Payer . . . . nor do we have the security of a job . . . or the benefit of being paid huge wages for semi skilled administrators !
    Perhaps if the FCA took a REAL look at precisely what Independence is instead of playing with words ( and become gainfully employed ) or insulting advisers – we might have more respect. I have huge respect for those who have earned respect – are dominant open and transparent in their dealings .. . ..This is not a phrase I could use toward the FCA – as yet ! Clearly the FCA needs to demonstrate how deviant they can be . . .and how much they can get away with the abuse of their Power. At Scottish Widows I confirmed to Mike DRoss ceo he has earned the title of being a ” Stalanist Freak Control Merchant “. Perhaps I should have gone further . . . .but such is the effect of the Power crazed . . .rather than their commitment to providing good service – or regulatory controls in an attempt to provide a workable framework . . in which advisers can operate. As it is adviser numbers have reduced – to abysmal levels a result of a combination of Factors including RDR – yet the regulator ( when not insulting advisers ) does Nothing ! I wonder why ?

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