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We cannot be prescriptive on business models –FCA

We cannot be prescriptive on business models –FCA

The FCA has said it cannot be prescriptive about an advisers’ business models despite setting out six examples of how they should ply their trade.

The distribution models are included in the City watchdog’s guidance on retail investment advice.

In the document, the FCA sets out what the difference is between simplified advice, focused advice, full advice, limited advice and personal recommendation.

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David Geale, director of policy at the FCA, said this was not designed to prescribe to advisers what sort of service they should be giving.

He said: “I would not use the word prescriptive. We are helping them understand the consideration they need to have when giving advice or guidance, and how to deliver that service.

“We cannot be prescriptive. There is a multitude of different business models, advisers have myriad conversations with their customers, and they use a range of ways to communicate.”

The FCA has published a table of the six distribution models available for retail investment products.

These are divided into two groups depending on whether they come with a personal recommendation or without.

They range from execution, reception and trasmission of orders for non-Mifid products, for which no training or qualifications are required, up to full advice which can be independent or restricted but involves a personal recommendation.

Mr Geale said: “The thing is the FCA cannot be exhaustive in the examples we give as there is a myriad of things that firms do, and they cover multiple clients with multiple needs.

“They must take responsibility for what they say and how they say it.

“The customer will not understand what is simplified or not, but the IFA will, and the customer will need to understand the service and the limitations that go with that service.”

Without a personal recommendationWith a personal recommendation
DesciptionNon-Mifid productsMifid productsNon-complex productsSimplified adviceFocused adviceFull advice
Execution and/or reception of and transmission of orders for a) pension or insurance-based investments; or b) other non-Mifid products excluding (in response to direct offer financial promotions) non-readily realisable securities, derivatives or warrants.Execution and/or reception of and transmission of orders for Mifid products or (in response to direct offer financial promotions) non-readily realisable securities, derivatives or warrants.Execution and/or reception of and transmission of orders for non-Midif products at the client’s initiative.Provision of personal recommendations where the firm sets out the limited nature of the service in line with the guidance provided on this issue, either face to face, by telephone or electronically.A deliberate limiting of the range of personal recommendations sought by the client to suit their particular needs eg to seek a recommendation on buying an Isa.Full regulated advice which may be independent or restricted and will consider the full range of the client’s needs, including their debt and protection needs.

Gary Brown, the author of the guidance paper, said: “The labels themselves in the table are not new – they have been around for a period of time and called different things.