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Reasons to be fearful

IFAs fear being hit with another increase in the admin burden following

FSA proposals for intermediaries to write “reasons why not” letters to

clients if they do not recommend a stakeholder.

IFAs and trade bodies are concerned this will set a dangerous precedent

for regulation of independent advice.

But the FSA says the move could be necessary to protect intermediaries

against possible misselling allegations.

The proposal has met with considerable criticism from Sofa chairman Peter

Williams. He says: “There are many reasons why an IFA might not recommend a

stakeholder plan. If they have to writea reasons why not letter every time,

then it sets a very bad precedent for regulated advice.”

IFAs agree this could affect the future of regulation and independent advice.

Informed Choice managing director Nick Bamford says: “Writing to clients

to outline reasons why a stakeholder has not been recommended is a

ludicrous concept. If the FSA is saying advisers have to write to each of

their clients, saying why they are not recommending stakeholder to them,

then they might as well write and say why they are not recommending unit

trusts, life insurance products and critical-illness cover and so on.”

The proposal for “reasons why not” letters was outlined by the FSA at a stakeholder thinktank at the recent PIMS 2000 conference.

Speaking at the conference, FSA conduct of business policy adviser Richard

Cockroft said a letter justifying why an adviser recommends a personal

pension over stakeholder could protect an adviser from potential misselling


But IFAs, many of whom are still smarting after the sting of the pension

review, are not setting too much store by such a letter, saying they cannot

see how it would protect them.

Hargreaves Lansdown managing director Peter Hargreaves says: “Any IFA who

thinks they can hide behind a letter, unless that letter proves to be 100

per cent correct, does not have a leg to stand on. IFAs may write letters

to cover themselves as everyone is petrified after the pension review, so

content will be very important.”

But the FSA insists IFAs have a duty to remember stakeholder when they are

advising clients and outlining reasons why they are not recommending it is

just complying with current standard practice.

Spokeswoman Jackie Blyth says: “IFAs have a duty when giving advice to

tell them why their proposed plan is better than another. IFAs need to bear

stakeholder in mind not just because it is a regulated product but because

it is another product in itself. IFAs who are not recommending stakeholder

will have to let clients know the reasons why.”

Hargreaves agrees the move will be inevitable. He says as a result of the

publicity the Government is bound to generate on the back of stakeholder,

clients will be aware of the product and there-fore IFAs will have to

outline their rea-sons to clients if they are not recommending the plan.

He says: “IFAs will have to write to clients and tell the reasons why they

are not recommending stakeholder. I do not believe any IFA would dream of

selling a different plan and not outline the reasons why to a client,

especially after the pension review.”

IFAs also feel their professional int- egrity is being called into

question and that they are being hit harder by regulation than other


Towry Law Fraser Smith regional manager Patrick Murphy says: “Where will

this stop? I do not think other professions are regulated to this extent.

Solicitors do not have to write to all their clients and outline all the

reasons why they are not recommending a particular course of advice. It is

more logical to outline the reasons for a pension product than all the

reasons against stakeholder.”


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