Accountants and legal experts have raised concern over a potential contradiction between a recent regulatory paper and existing conduct of business sourcebook rules which has left many firms wondering whether they still meet tougher independence demands.
A thematic review into use of the independent label in March found most firms who describe their service as independent appear to be using the descriptor accurately in line with new demands post-Retail Distribution Review.
Only a “handful” of firms were said to be falling down due to issues such as describing themselves as IFAs despite using only one platform and not considering others, or because they actually offered a restricted service and referred to third parties where clients needed broader advice.
However, despite the positive findings, concern has been raised over specific provision contained in the appendix of the paper under the heading ‘referrals to other advisers’, which states all advisers at any firm which holds itself out as independent must be able to advise on all relevant products.
According to barrister Peter Hamilton of London-based law firm 4 Pump Court, the guidance is at odds with existing Cobs rules which refer only to the advice as given by a firm and not by an individual, and is “almost certainly wrong” as a result.
Mr Hamilton’s criticisms were first published in a blog post on the private community portal of the Institute of Chartered Accountants in England and Wales, where a number of members echoed the concerns.
The trade body has also given him two pages in its latest FS Focus magazine that is sent to members of its financial services faculty. It is hosting a workshop on 5 June on the subject and is hoping to secure FCA representation to address questions from members.
In the paper the FCA states: “We have seen cases where firms refer clients to another advisory firm if they are unable to meet a client’s needs. Similarly, one adviser in a firm may routinely refer certain clients to another adviser in the firm if they do not have the experience or expertise required.
“Where advisers are unable or unwilling to advise on certain RIPs then these arrangements would not meet the independence rule.”
The FCA refers in the notes to Cobs 6.2A.3R, which states: “A firm must not hold itself out to a retail client as acting independently unless the only personal recommendations... [are] based on comprehensive and fair analysis of the relevant market... and unbiased and unrestricted.”
Mr Hamilton writes: “With respect to the FCA, this cannot be right for the simple reason that the rule in Cobs is directed at firms, and not at individual advisers.”
The FCA explains in the paper that all advisers must be able to refer to all products for a firm to hold itself out as independent as clients are “entitled to reasonably expect” a fully independent service under the new rules from any any adviser at a firm which describes itself as such.
John Gaskill of ICAEW’s financial services faculty responded to Mr Hamilton’s original blog post by asking: “Does this mean that each and every adviser within a firm must, in effect, operate as a one-man expert in all areas?”
He added: “Surely this is not the way a professional practice model works and not the way professional advice needs to be delivered.”
