Before tarnishing all acts of delegation with the same brush, it is important to remember that there are ways of delegating that can be advantageous.
Many advisory firms simply do not have the level of software - which can be a significant business investment - or the right qualifications or permissions to do certain types of business.
Therefore, it makes sense to delegate some parts of client advice to properly qualified firms and individuals, or to firms which have the right software, rather than spend thousands of pounds and possibly months putting the people and processes in place.
Rachael Healey, senior associate at City law firm RPC, says: “The potential benefits to advisers include cost savings if - as with pension switching - the firm simply does not have the resources to provide the advice.”
Regulatory risk can also be a factor in delegation.
When the advice process, or part of it, is passed to a regulated third party, according to Liz Coyle, compliance policy manager at the SimplyBiz Group, “advisers can ensure that your client issuing an appropriate third party and, in the majority of cases, regulatory risk is held by the third party who gives the advice.”
In some cases, as Ms Healey states, an unregulated third party can sometimes provide the advice cheaper than the regulated firm itself - and this cost benefit has been a key component of some firms’ decision to delegate.
However, this cost consideration, of course, comes with the caveat encapsulated by the word ‘unregulated’.
Cost savings through delegation should only be sought if the third party themselves are regulated and a proper client referral has been made in full.
Otherwise, the ultimate responsibility for advice still remains with the delegating firm - a point raised by the FCA in December 2015, when it issued a statement warning, “Delegating regulated advice to an unauthorised party will not mean that the firm can avoid liability or regulatory action for unsuitable advice”.
A firm may not have an adviser with the required qualification to advise on long-term care, so may choose to refer clients Tony MilesA helpful distinction is made by Tony Miles, business development consultant for the Personal Finance Society, who says: “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.
“Otherwise, it would be in breach of requirements in relation to regulated advice, potentially leading to enforcement action by the regulator.
“Where a regulated firm delegates either services or advice to a third party (but retains ultimate responsibility for that advice), the advantages may include cost savings, where the delegated entity provides a service at a cheaper cost than the delegating firm can.”
Mr Miles provides other examples of advantages of delegation from one regulated firm to another regulated firm.
Another advantage of such a referral might be giving the client access to expertise or analysis that might not be available within the delegating firm.
He adds: “There is also the benefit of the provision of a specific advisory service that the delegating firm is not authorised to give but their client requires.
“For example, a firm may not have an adviser with the required qualification to advise on long-term care, so may choose to refer clients in respect of this specific client need to one that does.”
So whether it is for reasons of process, software provision, area of specialisation or cost-saving, delegating advice can be beneficial to both adviser and client - as long as the delegating firm a) accepts ultimate responsibility for the delegated advice and b) hands the client onto another authorised, qualified firm/adviser.
