Last year, the FCA’s first RDR implementation review found evidence of advisers eschewing restricted and labelling themselves as IFAs, whilst offering a service that does not meet the new standards for independence.
In particular, the review pointed to a case study of one adviser firm that places 98 per cent of business with a single platform and offers a managed funds service into which 99 per cent of business is placed in practice.
The firm describes itself as independent and will build bespoke portfolios where requested by the clients, but that just will not pass muster to be an IFA, the regulator said.
IFA network 2plan Wealth Management has called for the regulator to ban advisers that inaccurately describe themselves as independent when they are in fact restricted.
The network warned that consumers will “ultimately suffer” if the regulator does not crack down on advice firms inaccurately describing themselves as independent.
2plan believes some restricted firms are posing as independent, confusing potential customers with “misleading terms” like ‘restricted universal’ or ‘restricted whole of market’ that hint at a non-existent middle ground.
In a blog post on FTAdviser in January, 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.
Chris Smallwood, 2plan chief executive, said: “These changes and terms were brought in to make charges more transparent to the consumer and advice more genuinely independent.
“The two terms - ‘independent’ and ‘restricted’ - demonstrate a clear distinction between independent advisers that can offer the full range of financial products and providers available and restricted advisers that focus on a limited selection of products and/or providers.
“There is no middle ground, and the FCA must show itself to be strong by cracking down on those restricted firms that are clouding the waters by using terms not approved by the regulator to suggest that they offer both restrictive and independent advice.
“If it has the interests of the consumer and the reputation of the financial advice industry, then it must move swiftly to issue an outright ban on misleading terms.”
Earlier this year, Nick Poyntz-Wright, the FCA’s director of long-term savings and investments, said there was still a lack of clarity over the new definitions and that the FCA would be “redoubling” its efforts in 2014.
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.
An FCA spokesperson said: “The FCA will always act wherever we find examples of consumers being unfairly treated.
“We expect firms to be clear, fair and not misleading so consumers understand exactly the type of advice they are receiving.
“This is an important area of work and we are currently undertaking a thematic review on the subject of independent versus restricted advice to be published later this year.”
