New rules that came in under the Retail Distribution Review and created a binary choice for financial advisers of adopting either a toughened ‘independent’ approach or a far more flexible ‘restricted’ model “are not completely working”, the Financial Conduct Authority has conceded.
Speaking at a roundtable giving an update on the first 12 months under the new regime, director of long-term savings and investments Nick Poyntz-Wright said there was still a lack of clarity over the new definitions and that the FCA would be “redoubling our efforts” in the coming year.
Martin Wheatley, the chief executive of the conduct watchdog, also admitted there was more work needing to be done on clarifying the definitions but that it would not be seeking to change the rules.
There have been widespread calls in the past year for the FCA to relax the rules around independence post-RDR. IFAs must now advise on a far wider range of products to include anything that could be relevant for a client, rather than simply being distinguished by their lack of provider affiliation.
Most argue the new rules have therefore increased the potential for claims and thus increased risk and professional indemnity costs, while others have claimed that most small firms lacking large research teams will ultimately be unable to retain independence.
In addition, many say the new rules have brought confusion over whether an adviser that is ‘whole is market’ should be considered as independent or restricted, with a number of advisers seeking to avoid using the latter moniker due to its association with tied advice.
In a popular ‘Adviser Rant’ column for FTAdviser sister title Investment Adviser last year, Rab Shields, IFA at Simple Solutions Wealth Management, said he was unsure whether his business model would classify him as independent.
He wrote: “I use a platform for most of my business, selected using a rigorous due diligence of the platform market. I occasionally use other products rather than those on the platform if I believe they are better for my client.
“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.”
In a separate blog post on FTAdviser last week, Financial Adviser’s Daniel Liberto reported on concern among many IFAs that the FCA rules do not force restricted firms to be more open about their status, with even the FCA register not disclosing whether a firm is independent or restricted.
