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Restricted firms should warn clients of ‘material disadvantage’

Philippa Gee 160 byline

The Institute of Chartered Accountants in England and Wales has argued restricted firms should have to explain to clients how they could be ‘materially disadvantaged’ by the limitations of the firm’s advice service.

Under the RDR, firms that provide advice to retail clients on retail investment products have to explain to their clients whether their services are independent or restricted.

Restricted firms also have to explain the nature of their restriction.

But ICAEW financial services faculty technical manager John Gaskell says the disclosure should go further. 

Speaking to Money Marketing last week, Gaskell said: “If a restricted firm is describing its services, I would suggest that firm needs to demonstrate how the client could be materially disadvantaged by the restriction. 

“The term ‘materially disadvantaged’ is useful because I think that is how the nature of the restriction should be described.

“Restricted advisers should, for example, tell clients, ‘in certain circumstances there could be a material disadvantage because we can only assess the following range of options for you’. 

“Then clients can understand what restricted means. Otherwise it is regulatory gobbledegook.”

The ICAEW code of ethics says accountants making referrals for investment advice have to ensure the advice is ‘objective’, but does not stipulate that advice has to be independent.

IFA Centre managing director Gill Cardy says: “One of the issues the FCA’s thematic review has shown is whether firms are clearly explaining what their restrictions are.

“The bounds of restricted advice could be quite damaging for some clients for whom more niche investment options could be suitable. 

“The term ‘whole of market restricted’ has no meaning whatsoever and there is anecdotal evidence that some firms have not been forthcoming about using the word ‘restricted’ and what it means in practice.”

The ICAEW is hosting a wealth management conference on 13 September which will examine the practical issues relating to independent advice and  investment suitability. Advisers can find out more about the event here

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