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Will advising on securities increase the risks for advisers?

Advising on and dealing in direct securities has historically been the preserve of stockbrokers rather than financial advisers. The extra regulatory requirements, with the burden of additional capital requirements and costs, have traditionally discouraged many financial advisers from involvement in direct securities. Before the introduction of the RDR earlier this year, the lack of commission available on direct securities also made this area unappealing to some advisers.

Post-RDR, advisers can no longer receive commission from product providers and independent advice means being unbiased and unrestricted. These changes have paved the way for direct securities to appear on the financial adviser radar, creating a potential need for formal qualifications in this area specifically for financial advisers.

The CII has addressed this need with its new qualification, the J12 Certificate in Securities Advice and Dealing.

The CII announced the launch of the new exam by saying the new exam is a reflection of changing regulations and consumer demand.

Fay Goddard, chief executive of the PFS, said: “The need for greater knowledge, expertise and higher professional standards in the area of securities advice and dealing has never been greater, driven not least by regulatory change and the desire to better serve consumers. Investment vehicles are constantly evolving and the need for broader knowledge is essential.”

Support materials will be available next month and the first exams will take place in September.

Financial services training firm The Patterson Group managing director Ian Patterson agrees. He says: “J12 is primarily going to appeal to two populations – those requiring 20 credits towards chartered status and who have some interest or potential interest in securities, and independent advisers who may offer securities as part of a unbiased and unrestricted offering and need authorisation to do so.”

Patterson points out that the RDR has led some advisers to think more widely and look for ways to differentiate themselves from their competitors, which J12 could provide.

But commentators expect the certificate to have niche rather than mass appeal among advisers.

Chadney Bulgin partner Bruce Bulgin says: “ Pure financial planners, rather than those who want to specialise in investment advice, are unlikely to be interested as many will believe that they can use more conventional collectives to help achieve their clients’ financial objectives.”

Bulgin points out that those advisers who hold the old style AFPC can gain the qualification through gap fill, rather than having to complete the J12 exam. He also highlights the higher risk involved in individual securities and derivatives.

Advisers will need to work out whether it is worth taking this level of risk. If they get it right and beat the returns from the more conventional approach then all well and good, but this cannot be guaranteed. Some advisers will believe that this qualification will make them well placed to offer the widest possible range of advice, though on balance we feel that it is likely to be a minority,” he says.

IPFM director Luke Gibbon has concerns about the qualification and believes advisers cannot compete with the expertise of specialist fund managers. “We cannot perform every role. I am certain the exam will appeal to some advisers but it is not a route I will be going down.

Are we going to have advisers pontificating on shares without the research and back-up that people like Neil Woodford have? It could set a dangerous precedent if the qualification is a watered down version of the stockbroking exams.”



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