Despite strong statements in its consultation on the Arch Cru consumer redress scheme that targeted advisers last year, the regulator does agree that advisers should be able to rely on information provided by providers in published product literature, Chris Hannant has said.
Speaking at a Financial Times event on multi-manager funds in London yesterday (3 October), the director-general of the Association of Professional Financial Advisers told delegates that the Financial Conduct Authority had confirmed that advisers are not required to do “endless due diligence” into “factual” statements.
He said rather than advisers are simply obliged to ensure that any information provided is “sufficient” to be confident in suitability for their client and that it is robust and “internally consistent”, that is to say “it’s got to make sense”.
A consultation on a consumer redress scheme that could demand recommending advisers provide up to £50m in redress implied that intermediaries were responsible for verifying information from providers, after many had said they simply relied on claims in fund documentation that are now in question.
Capita Financial as authorised corporate director had regulatory responsibility for the Arch Cru funds. Cru Investment Management as marketing firm had responsibility for producing the Arch cru marketing literature.
Robin Farrell and Robert Addison, chief executive and compliance director respectively of the former fund manager of the Arch Cru funds, were hit with £850,000 worth of fines in relation to ‘conflicts of interest’. The firm, Arch Financial Products, was censured but spared a £9m fine due to lack of funds.
Both Mr Farrell and Mr Addison are challenging the notices and have referred the matter to the Upper Tribunal.
Mr Hannant argued that a paper published by the Financial Services Authority in 2007 clearly suggests that financial advisers can rely on information from providers as long as they feel it is complete and credible, and that this has been reaffirmed in conversations since.
Mr Hannant said: “We had a discussion with the regulator around what their expectations were, because they seem to imply in the Arch Cru redress consultation that an adviser should do research behind everything... and do endless due diligence on it checking it’s right.”
While emphasising the burden on providers, Mr Hannant highlighted two points that advisers must take into account to confidently recommend a product as suitable.
“One is that whatever information they have got is internally consistent. It’s got to make sense and that’s incumbent on the adviser.
“The second thing is if for whatever reason they think it isn’t sufficient or if they have questions in the back of their mind they do have a responsibility to question the provider.”
The 2007 paper states when providing information to distributors, provider firms are responsible for ensuring it is “is sufficient, appropriate and comprehensible in substance and form, including considering whether it will enable distributors to understand it enough to give suitable advice.”
“The provider may wish to consider, with regard to each distribution channel or type of distributor, what information distributors of that type already have, their likely level of knowledge and understanding, their information needs and what form or medium would best meet those needs.”
The FCA could not be reached for comment.
