Despite regularly wittering on about scooters, I have never been a Mod. Don’t get me wrong: I love the clothes and the music. My problem, sadly, is I cannot get over the anal quality of some Mods, for whom everything becomes an exercise in one-upmanship and a pretentious search for “difference” from their peers.
That said, I really get the slogan, apparently first coined by Harley Davidson owners (of all people) but appropriated by Mods to describe their own scene: “If I have to explain, you wouldn’t understand.”
As a keen Harley rider himself, West Riding Personal Financial Solutions managing director Neil Liversidge is perfectly placed to understand this phrase. The trouble is, increasingly he finds it being applied when he stands up for basic definitions such as “independent financial advice” against organisations such as the FCA – and, possibly, his own trade body.
In last week’s edition of Money Marketing, Neil recounted his experience of a consultation on this issue at a meeting between himself and FCA representatives a few months earlier.
In fact, I am not sure if “consultation” is the right word; it sounded more like a vague discussion between individuals, with no firm outcomes promised or expected from the meeting.
However it may be described, Neil wrote: “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, who 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.”
I don’t disagree either and neither would most readers of this column. Except that when the regulator published its thematic review on independent financial advice in March 2013, it not only appeared to deviate from this simple approach, it introduced new potential hazards for anyone wanting to call him- or herself an IFA.
According to leading financial services barrister Peter Hamilton, the FCA’s review goes so far as to state that if an adviser “routinely” refers clients to another specialist in the same IFA firm because the former is “unable or unwilling to advise on certain retail investment products”, they “would not meet the independence rule”.
I have read the FCA’s review and Hamilton is right: this is at first sight a contentious definition of what constitutes “independence”. He also has a point in highlighting the reference to “a proper system of internal peer review”, which means “no one outside the team that wrote the report sat down and thought about what the rule said and whether the report was putting an incorrect interpretation on the rule”. And he is surely right to point to an absence of consultation with independent firms, notwithstanding Neil Liversidge’s meeting with regulators – something
I will come back to later.
Even so, having spoken to several independent advisers recently, my understanding is that if an IFA were to ask a colleague in the same firm, or even in an outside company, to assist on specific aspects of product advice, this would usually be classed as acceptable to the FCA.
The key is whether the client is routinely being handed over from one adviser to another in some form of pass-the-parcel exercise. In addition, the advice from another source is treated as being based on an entirely separate perceived area of expertise, or even from a different organisation within the same firm, for example, using both restricted and independent advice options simultaneously.
This cannot be right. There must be a structure in place where the original IFA is able to weave together and take ultimate responsibility for each strand of advice and product recommendation, no matter where it comes from.
For all that, Neil is correct in saying there are simpler ways to define independent financial advice. So why are they not being used?
My guess is no one at Apfa cares any longer. It surrendered the moral high ground on the question of genuinely independent advice at least four years ago, even before the publication of Aifa’s paper, Advice Horizons, in 2010. Then, it defined independent advice as the “gold standard”, before discussing restricted advice almost as favourably. Today, I doubt the words “gold” and “standard” would get a look-in were Afpa discussing the same topic. This is perhaps best exemplified by fellow Apfa council member Alan Lakey, whose online response to Neil’s article was telling: “I believe the distinction once afforded by the title ‘independent’ is no longer worth fighting for.”
The bottom line is the preservation of the term “independent advice” is now the preserve of those who, like Neil Liversidge, believe the acronym IFA still has traction among millions of consumers.
For other advisers who have long since embraced restricted advice, “if it needs to be explained, they probably wouldn’t understand”.
Nic Cicutti can be contacted at firstname.lastname@example.org