FSA ‘collective’ independence rules put focus on controls
A team of advisers can collectively give independent advice, as long as the firm has systems to ensure standards are being met.
In February this year the FSA published finalised guidance concerning the top questions that it had received at its retail distribution review roadshows.
One of the questions the FSA posted in the finalised guidance was: “If a firm has three advisers who give restricted advice, but as a team they can advise on all retail investment products, can the firm hold itself out as independent?”
The answer the FSA gave was fairly textbook in that it said: “No one in a firm that holds itself out as independent should make a personal recommendation to a retail client unless that personal recommendation is based on a comprehensive and fair analysis of all types of retail investment products which may be suitable for that client.”
Recently the FSA has published finalised guidance concerning independent and restricted advice under RDR. The penultimate paragraph of the guidance also covers the situation where there are multiple advisers. In this paragraph the FSA stated: “More than one adviser may be involved in developing independent advice for a client.”
However, it caveats this by adding that where a retail client has contact with a number of advisers within a firm, there needs to be a mechanism in place to ensure that any resulting personal recommendation meets the required standard. To reinforce this point the FSA added: “It is the firm’s responsibility to have appropriate systems and controls to ensure that personal recommendations provided by their advisers meet the required standard.”
With the latest guidance the FSA has said that a team of advisers can collectively give independent advice. This is as long as the advice itself meets the requirements for independent advice and that the firm has systems and controls to ensure that the standard was being met.
I think that the systems and controls issue and how firms internally document how advice meets the criteria in these instances will be crucial.
Simon Lovegrove is a lawyer with the financial services group at Norton Rose LLP