From Adviser Guide:
Independent vs Restricted 1hr
Q: What do I have to do to be independent post 2012?
Independent advisers must be able to undertake a comprehensive and fair analysis of the relevant market that is both unbiased and unrestricted.
Whole of market research should extend beyond packaged products to all retail investment products, which includes investment trusts, structured products and exchange traded funds.
According to a consultation paper published in February 2012, in providing independent advice, a firm should not be restricted by product provider, and should also be able to objectively consider all types of retail investment products, and other relevant financial products, which are capable of meeting the investment needs and objectives of a retail client.
A relevant market in the context of the standard for independent advice is defined by a client’s investment needs and objectives and not, for example, by product or service types.
Investment needs and objectives need to be assessed by independent advisers on an individual client basis, so the FSA stated it does not believe it possible that many firms can say unequivocally upfront what products may be capable of meeting the investment needs and objectives of their clients.
If a firm can identify a common relevant market across all of its clients that does not include certain retail investment products, it would not need to consider such products when giving independent advice.
To not consider certain retail investment products, the firm would need to be able to market itself in a way that attracted only the intended type of clients, and only take on the intended type of clients.
This would mean that both the firm and consumers would need to be able to easily identify whether the consumers’ relevant market matched the firm’s specialism, for the firm to provide independent advice.
Where the FSA has identified high-risk products and recommended that they should not reach retail investors in the UK, a firm would not need to consider them for its clients to meet the standard for independent advice.
Keith Richards, distribution and development director of Tenet Group, said: “The key point to understand is that the IFA must be willing and able to consider these specialist investments as and when it is appropriate to do so.
“The FSA does not expect a firm to review the market for a product which does not meet the client’s needs and objectives. Advisers can still utilise appropriate panels to help them do so.
“An independent adviser may theoretically still use a single platform but must on a case-by-case basis consider alternatives, including off platform retail investment products and it seems unlikely that a general practitioner IFA will successfully use one platform service where clients have varying needs and circumstances.”
Independent advisers must have a QCF level four qualification, Statement of Professional Standing and have necessary evidence to demonstrate their awareness of all types of retail investments.
However George Higginson, chief executive of Sesame Bankhall Group, warned the FSA has also included a generic description that is designed to catch newly developed products.
So an independent adviser may find that the scope of products that needs to be considered increases in the future, he noted.
Mr Higginson said: “This could potentially result in a more onerous compliance and supervision regime for independent advisers as the years progress.”
Finished reading all the other articles in this Guide?Bank 1hr of Structured CPD
More in this guide
- Q: What does independent mean?
- Q: What are the pros of being independent post 2012?
- Q: What are the cons of being independent post 2012?
- Q: What impact will independence have on PI insurance?
- Q: What does restricted mean?
- Q: What do I have to do to be restricted post 2012?
- Q: What are the pros of being restricted post 2012?
- Q: What are the cons of being restricted post 2012?
- Q: What impact will being restricted have on PI insurance?
- Q: What impact does my status have on how I charge clients?
- Q: What are the qualification requirements for advisers?
- Q: How should I explain my status to my clients?
- Q: Can I be both independent and restricted?