The Financial Conduct Authority has sought to quell concerns and ‘correct’ its stance on independence advice rules, following a paper earlier this year which appeared to state independent advisers could not refer to specialist colleagues within their own firm.
In an exclusive article for FTAdviser, David Geale, director of policy at the FCA, admitted that a “wider interpretation” was possible that would allow for referrals within a firm and confirmed that the regulator does not “have an issue with firms using their own specialists”.
FTAdviser reported in May on queries that had arisen in the wake of a paper on independence rules in March, which in a section on referrals in the appendix stated that all advisers at any firm which holds itself out as independent must be able to advise on all relevant products.
Peter Hamilton, barrister at London-based law firm 4 Pump Court, branded the guidance a ‘mistake’ and pointed out that it is at odds with existing Cobs rules which refer only to advice as given by a firm and not by an individual, claiming it is “almost certainly wrong” as a result.
John Gaskell, manager of financial planning at the Institute for Chartered Accountants in England and Wales, hinted to FTAdviser the rules were a further threat to independence because they would mean any IFA firm was likely to be unable to offer “complex” advice.
Mr Geale writes: “In our discussions with industry some have suggested that the use of specialist advisers within a firm could improve client outcomes. The argument goes that advisers may, often routinely, refer their clients to a colleague with particular expertise or experience, such as income drawdown.
“Having looked again at this issue, we agree that this wider interpretation of our rules is possible.
“To be clear: we don’t have an issue with firms using their own specialists. However, firms must have appropriate systems and controls in place to ensure that personal recommendations provided by their advisers meet the required standard.
“Given the discussions we’ve had with industry we saw there was a need to correct recent statements on operation of the independence rule, which did not match the original intention of the rule.”
He added that firms can remain independent and put in place mechanisms such as licensing of advisers, to control the quality of advice on “higher risk products that will rarely be suitable for the firm’s clients”.
Mr Geale adds that European Mifid II rules, set to come into force in 2016, may result in changes to the current definition of independence.
Mr Geale says: “[Mifid II] makes specific reference to independent firms and so, among other things, may result in changes to our current definition of independence. We are therefore aware that this issue is one where there could well be further developments.”
