Advisers wishing to remain independent cannot discount products not covered by the Financial Services Compensation Scheme by including a question on this in their factfind, Gary Dale, head of sales at Investec Structured Products, has said.
Mr Dale said that only after fully considering the consumers’ needs can any decision regarding the suitability of specific product types be discounted. Many ‘non-deposit’ style structured products are not covered by the FSCS, which would include many of the products in Investec’s range.
His comments follow revelations in an FTAdviser article that the industry is split over whether to advise on products that do not benefit from FSCS protection.
Some advisers expressed concern about advising on such products - typically those domiciled outside the UK and including many ‘mainstream’ funds - and suggested that if advisers include a question in their factfind they can remain independent even without advising on these.
Mr Dale warned that if advisers ask this question and the investor says no, they are adopting a “dangerous stance”.
He said: “This is a dangerous stance to adopt for any firm and, in addition, investors may believe that all losses, including investment losses, are covered by the FSCS which could prove very troublesome for adviser firms to manage. Mis-communication risk anyone?
“Also, simply asking this question will not exonerate an adviser firm from having in place adequate PI cover or demonstrating to the regulator that their research of products is unbiased, unrestricted and whole of market, if they wish to remain “independent”.”
Mr Dale also warned that this question would imply that investors fully understand the FSCS, including monetary limits and when the FSCS will and won’t apply.
He said: “Certainly in my own experience many advisers themselves do not fully understand how and when the scheme may apply, especially around counterparty failures. Asking and expecting consumers to answer this type of question is at the very least passing to the client too much responsibility when the adviser should be offering full and frank guidance.
“Would it not be more appropriate and, dare I say, it professional for all advisers, independent or restricted, to concentrate on understanding the products available, understand the associated investment risks and be mindful only of the FSCS. The scheme is, after all, a measure of last resort.
“The only way adviser firms can protect themselves from making unsuitable recommendations is to fully understand the brave new world post-RDR, understand the extensive FSA writings relating to structured products and apply this knowledge to making suitable and high quality investment recommendations.”
