Financial Conduct Authority guidance on independence does not lack clarity but simply ‘sets the bar too high’ and will eventually force most smaller firms to adopt a restricted label that has “all the cache of an Asbo”, according to one IFA that sits on one of the regulator’s business panels.
Dick Carne, director of Asset Management IFA Ltd and member of of the Financial Conduct Authority’s ‘smaller business practitioner panel’ was speaking to FTAdviser in the wake of the publication of board minutes which cite confusion surrounding independence criteria.
According to the minutes of the FCA board meeting of 26 September, the smaller business panel in its latest monthly report raised concerns that “some of the firms it represents were unclear about the definitions of ‘independent’ and ‘restricted’ and that some... IFAs believed that it was difficult to prove they were independent due to this confusion”.
This echoes the comments of a number of advisers in recent months, including Rab Shields of IFA Simple Solutions Wealth Management, who wrote an Adviser Rant column for FTAdviser sister title Independent Adviser stating that he and others were unsure whether they could still call themselves independent.
He wrote: “The FCA says ‘independent’ advisers consider all products from all firms, whereas ‘restricted’ advisers consider products from several but not all product providers.
“I think that makes me independent but when I read the many articles on the subject I am not so sure and, in fact, each one I read just leaves me more confused.”
However Mr Carne, one of two advisers on the panel, said he disagreed with the assertion that firms were confused over FCA guidance. He said regulatory guidance was “crystal clear”, but that it sets the “bar too high” and will result in almost all smaller firms being forced down the ‘restricted’ route.
Mr Carne added that most firms are currently seeking to “go beneath the radar” or are hoping to see the rules changed because they do not like the restricted label, which he said “has all the cache of an Asbo [anti-social behaviour order]”.
He said: “The FSA published a very clear document on what its expectations are in June last year and I don’t think we can truly say they are not clear.
“Crucially the effect on smaller adviser firms will be giving up independent status as the bar is set too high. The example of Sesame giving up independence has exacerbated this. Few small IFAs left will be purely independent.”
“Restricted has all the cache of an Asbo.”
Earlier this month, Sesame Bankhall Group confirmed market speculation that the Sesame network will be removing the option for authorised representatives to be independent and revealed that plans are under way to launch a second restricted proposition alongside its existing panel-based option.
Mr Carne said: “The independent bar is set too high: there are not enough resources to research every product in the market every time we give advice. The actions of [Sesame Bankhall] show that there aren’t.”