The Financial Conduct Authority has stood by its definition of independence, claiming research has demonstrated only a small minority of firms are mis-using the term.
A thematic review published by the FCA today (20 March) said most firms who describe their service as independent appear to be using the descriptor accurately.
In a survey of 113 firms, 88 of which were independent, the regulator found that only a handful were misusing or misunderstanding the term.
Of the 88 self-styled independent firms, the FCA found only four where it could not tell from the firms’ responses whether the firms were truly independent.
In their response to the questionnaire, a further two firms made clear they were not actually independent, despite claiming they were.
Some places where firms fell down on their independence claim included those using only one platform and not considering others, and those which themselves offered a restricted service but which would refer clients to third parties if they needed advice falling outside their remit.
Clive Gordon, head of investment advisers and platforms at the FCA, told FTAdviser: “As part of our general discussion with the industry, we have had feedback asking us to clarify the rules in this area.
“The rules aren’t as onerous as some firms think. [There has been] a lot of discussion of whether smaller firms can comply with our independence rules. We feel they can.”
He pointed out that firms do not actually have to conduct due diligence on every product in the market, but instead can “filter down” to a narrower scope of products within which due diligence must be completed.
For example, if an adviser mostly sees relatively unsophisticated and straightforward clients, they might be able to broadly rule out venture capital trusts in most cases.
However, advisers must keep themselves educated on all sectors and providers in case clients need such a product.
Nick Poyntz-Wright, director of long-term savings and pensions at the FCA, said: “Most firms are using the ‘independent’ tag correctly, which is important in helping consumers understand what service they are buying.
“But, for those firms who remain unsure, we are providing further help so that they can better understand the standards they need to meet.”
At a round table earlier this year however (14 January), Mr Poyntz-Wright told journalists the current definitions of independent and restricted were “not completely working”, and said the regulator would “redouble” its efforts to ensure advice firms understood the distinction.
