The Financial Conduct Authority has found firms are not being clear about what proposition they are offering clients, and the regulator said intermediaries must use the terms ‘restricted advice’ or ‘independent advice’ in describing their service to clients.
In a thematic review on how firms are implementing the Retail Distribution Review, published today (25 June), the FCA warned advisers have to be “upfront” about whether they are independent or restricted before they give advice.
Although the regulator has stopped short of prescribing wording for firms to use when describing their restricted service, the regulator has said they must include the term ‘restricted advice’ in their explanations.
The FCA said it is concerned a client would be unable to understand the nature of some firm’s restrictions from some of the explanations it saw from its review of 50 adviser firms.
The FCA said that one firm did not use the word ‘restricted’ in its disclosure, while another firm stated it offered ‘restricted advice’ with no further explanation.
Another firm explained its advice was restricted but, according to the FCA, did not sufficiently disclose the nature of the restriction.
The firm’s advisers each had a different restriction by provider or product type so it could not generically disclose the nature of its restriction as it had no set or defined restricted status.
The FCA said: “We were concerned that, for each of these examples, a client would be unable to understand that the firm offered a restricted service or would not understand the nature of the firm’s restriction.
“We felt that client understanding would increase where a firm had provided a clear, succinct explanation of its restriction and the impact on its advice. The consumer research supports this view.”
However, Paul Harrison, head of Prudential’s business consultancy unit that is providing post-RDR advice to intermediaries, previously told FTAdviser that it was not “technically incorrect” for restricted advisers to introduce themselves as just a financial adviser.
The FCA said a good example of a firm explaining its restriction is where a firm made its client aware before the initial meeting in writing – and again at the start of the initial meeting – that if it made an investment recommendation, it would be for the firm’s own products.
If the client’s needs could not be met by these products, the firm acknowledged it would be unable to offer the client a suitable recommendation, the regulator said.
The FCA was also concerned some firms, while describing themselves as independent, were not offering a truly independent service.
The FCA said examples of where firms are not independent include where almost all business is being placed with one platform, and having a pre-determined list of products or investments.
