Many advisers may have relied to a certain extent on outsourcing and therefore the Financial Conduct Authority’s crackdown may have caused some concern.
However it is clear that not all outsourcing is forbidden.
As the Personal Finance Society’s business development consultant Tony Miles has explained, a regulated firm cannot delegate ultimate responsibility for advice unless it makes a client referral in full to another authorised firm with the appropriate permissions.
While it is also possible to delegate services such as analysis, it cannot delegate the client releationship and liability for advice.
He says: “For example, pension transfers require a pension transfer analysis and where software is not readily available to the original adviser using the services of an unregulated third party may be appropriate.
“In such circumstances, the original adviser should simply pay for the analysis before concluding the advice or outsource the advice itself to a regulated firm with the appropriate permissions.”
So the first question, if the primary adviser knows he or she cannot deliver the advice or the service in-house, is to see whether they can outsource this to another regulated firm that can deliver that advice or service.
If not, the adviser should, claims Mr Miles, pay for the analysis to be done before he or she finishes the advice process.
This way, the client remains the client of the advice firm and he or she is not passed onto an unauthorised entity.
Getting the right permissions is another alternative - though more costly and time-consuming in the short-term, it would provide a significant long-term boost for the advice firm.
If a regulated adviser loses the opportunity to delegate it may mean they cannot provide the advice at all if they do not have the resources Rachael HealeyLiz Coyle, compliance policy manager for SimplyBiz Group, comments: “The alternative for firms is to acquire the relevant permissions themselves.
“However, it is often necessary to build up both qualifications and experience to place an adviser in the right position to give advice.”
The FCA is clear that it does not want unregulated parties being used to delegate advice.
A spokesman for the City watchdog explains: “We would encourage firms not to adopt this business model.
“If you are approached and if you take on business in this way, it may create a significant risk to your business model and may affect your professional indemnity insurance.
“We would encourage firms to contact us if they are approached by entities with a view to entering into the sort of arrangements as described in our notice.”
In the worst-case scenario, Rachael Healey, senior associate for City law firm RPC, says in certain circumstances the adviser might just have to forego the whole part of the advice.
She says: “If a regulated adviser loses the opportunity to delegate it may mean they cannot provide the advice at all if they do not have the resources.”
According to Ms Healey, in the example of pension transfer advice requiring a pension transfer analysis, it is “simply not possible” to provide the advice without falling foul of the FCA Handbook rules which prescribes the content of the advice.
To avoid censure, she recommends avoid taking on a case in the first place where some or all of the advice can not be provided in-house or in partnership with a regulated, fully authorised financial adviser.
Linda Todd, head of Bankhall Operations, also takes this view. She says firms should just say no.
Ms Todd says: “Authorised firms should not be delegating regulated activities to unauthorised firms.”
