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Robert Reid: Solving the independence mess


On more than one occasion I have remarked that the focus on product sales by the FSA and now the FCA would lead to problems as the market sub-divided into non-advised product sales and advice- centred firms.

The FCA is not set up to regulate advice. I realise some within the regulator may disagree but that simply underlines their lack of appreciation of how the market has changed and will change further. To regulate advice, the increase in staff would not only be significant but in reality there is a skill shortage so it may be impossible. Now I dislike destructive criticism so here is what I would do to solve the current mess.

It is ironic that FCA chief executive Martin Wheatley made a comment that the definition of independence sorely needs. His comment was to the effect, “What if the answer is to do nothing?” in a discussion around charges.

As the smart firms move to modular charging, the disconnection of adviser charging from the product provider provides some evidence of independence.

Extending the test of indepen-dence to cover research of the entire market fails to recognise that many advisers have fundamental issues with assessing the risk rating of various products such as hedge funds, structured products and unconstrained funds.

Defining independence has been made more difficult as many advisers see all their remuneration still being collected by the providers of products. But we cannot allow this to deflect us from challenging the regulator. After all, we were promised a regulatory dividend. At the moment we have more chance getting that from the Co-op Bank. 

The FCA needs to engage more with the sector and to accredit firms over independence instead of leaving it vague, especially around the use of platforms. Firms which take anyone with a heartbeat will struggle to prove that a single process does not derail their wish to retain their independent status.

I for one would be pleased to input to this process and resolve what may, on the current course, end up as a judicial review as some major players seek to protect their status.

If the separation of independence and restricted is driven by the par-anoia over bias, how can independ-ents be paid via providers as without a product sale there is no mechanism to collect advice charges from clients?

The recent Budget pension changes will lead to cash accounts being a standard part of an adviser’s armoury which then provides a better way to collect adviser charges.

Taking a calm look at this issue is what is needed. This is equally true of the guidance to be provided at retirement. To deliver this guidance, there needs to be filtration mechanisms that can ensure those needing help with complex issues are not lost in the mix. Whatever is decided, the providers are not the answer here. If they are suggesting their call centres help here, they have a sense of humour. Difficult issues such as independence or guidance deserve discussion, not diktats.

Robert Reid is managing director at Syndaxi Chartered Financial Planners 



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There are 2 comments at the moment, we would love to hear your opinion too.

  1. I have been led to understand that the FCA refuse to recognise advice because it would not allow them to comply with EU regulation. They did consider regulating advice but rejected the idea. So rather than stand up for BOTH our interests and that of consumers they regulate products. A cosy relationship between regulators immune from interference from politicians allows advice to be driven out of the marketplace. In so many ways I am driven to vote for UKIP if only to get the three mainstream parties to recognise the damage being done to financial services by regulators both in terms of stifling innovation but also in the overwhelming paperwork necessary just to give basic advice.

  2. Rob, its all just a game. No one from Politicians or the FCA upwards have any long term goals or ambition beyond the feathering of their own nests and being seen to be doing something. Politicians only think as far as the next election. Regulators come and go once the pension pot and golden goodbye has built up to a sufficient amount. Meanwhile we in the profession look to build our businesses long term and some people will stick at it for up to 40 years trying their best to look after clients.

    We can’t win, we won’t win. We didn’t go to the right schools, the right universities and we are not members of the same clubs. We are the plankton in the sea whilst they see themselves as the Great Whites devouring all in front of them and calling the shots.

    Rob you often talk a lot of sense but sometimes you just have to admit that nothing will change, they will pay lip service and we will doff our caps and follow obediently. If we don’t we will be put in the stocks and everyone can throw rotten fruit at us.

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