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From Adviser Guide: Independent vs Restricted

Q: How should I explain my status to my clients?

Advisory status should be explained in writing, verbally and in marketing material, according to Chris Hannant, policy director of the Association of IFAs.

By Emma Ann Hughes | Published Jun 13, 2012 | comments

There should be an up front written disclosure as to the type of advice the client will be receiving, be it independent or restricted.

According to Keith Richards, distribution and development director of Tenet, you will need to update your client agreement and initial disclosure documentation to reflect the fact that either; in the case of independent advisers, the investment service is based on retail investment products as opposed to packaged products; or in the case of restricted advice, to describe the revised service proposition, including the restriction on the type of products that can be recommended.

Restricted advisers will also be required to orally disclose the fact that they will be providing restricted advice and the nature of that restriction.

The FSA has not prescribed how restricted advisers must explain their status but it has demanded that such intermediaries must rebrand if they had the word ‘independent’ in their company name.

The regulator stated for example, a firm called Greenfield, which specialises in ethical and socially responsible investment, should not hold itself out as Greenfield Independent Financial Advisers. The City watchdog ruled such a firm could label itself as Greenfield – providing independent advice on ethical products.

At a high level, Deloitte stated a firm must include the term “independent advice” or “restricted advice” or both, as relevant, in the disclosure.

Beyond this;

1) Independent firms must include in the disclosure an explanation of that market, including the types of retail investment products which constitute that market.

2) Restricted firms are required to explain the nature of their restriction.

This includes an explanation about whether the advice is limited to retail investment products from a single company, a single group of companies or a limited number of companies.

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