FSA hard pressed to ensure independent advice: survey

The survey by support provider Aim Two Three found that while 89 per cent of IFAs plan to continue to be independent after RDR, only 49 per cent have considered recommending unregulated collective investment schemes in the past year.

David Ingram, partner for Aim Two Three, said this showed many advisers were unlikely to be offering advice on all products after RDR, despite marketing themselves as fully independent, and there is very little the regulator can do to stop it.

He said: “The only answer acceptable from a firm that plans to stay independent is that it would consider recommending Ucis, venture capital trusts and investment trusts in appropriate circumstances. Based on these responses we cannot accept that the number of firms stating they will be independent will actually qualify for this status.”

Mr Ingram said it would be difficult to see how the FSA could pick up on this problem until some kind of relevant, compulsory exam was introduced.

He added: “Only client complaints would seem likely to expose a firm as falsely describing itself as independent. I would expect some sort of mystery shopping exercises once RDR is in place.”

The survey polled 462 advisers from October 2011 to December 2011 and IFAs gave varied reasons for not considering Ucis. Some cited too much risk, while others felt they were too complex.

More than 17 per cent of advisers said they did not have sufficient knowledge of such investments, 5.7 per cent said their professional indemnity cover did not include these products, and 1.3 per cent said being a member of a network prohibited advice on such investments.

More than 33 per cent said they would never consider VCTs for their clients and 28.6 per cent would never consider investment trusts.

Richard Jacobs, director of Staffordshire-based Richard Jacobs Pension and Trustee Services, warned that too many IFAs were “paying lip service” to whole-of-market advice and that not enough understood the products they promoted.

Speaking at a conference in September, Phillippa Blunden, associate of the retail distribution review and conduct policy team for the FSA, said any adviser wishing to label themselves independent should consider overseas products.

Connaught Asset Management has run seminars about Ucis, while JP Morgan Asset Management recently said advisers who wanted to remain independent must offer advice across the whole spectrum of products, including investment trusts, “much more frequently”.

Steve Hennessy, IFA for Buckinghamshire-based Myers Davison Ginger, said: “If you want to be independent after RDR, investment trusts will be a key element for any financial plan.”