At the end of August, this document was published -the latest FSA tome on changes to how financial advice will look post 1st January 2013 and sadly but not unexpectedly disappoints. As suspected by many, and predicted by Lanson’s Richard Hobbs, the MAS is being left to deal with the education process.
But on the plus side, MAS has provided some good clarity on independent and restricted status.
On Restricted Adviser status it says:
“Some current IFAs will deliberately choose restricted status. If they are going to do so bear in mind that this doesn’t mean they will be any less professional – they will still need to follow the new rules for adviser charging, exams and professional standing described above. It also doesn’t necessarily mean that the best product for you will not be amongst the products they provide advice on. It simply means that they will be looking at a narrower range of products when considering what’s best for you.
It goes on to say that: “The adviser will need to tell you what ‘restricted’ means in their case – it could be:
- that they specialise in a particular type of product, such as pensions, or
- that they are tied to one or more providers and so can only advise on the products of those providers”
For those choosing the Independent route a balance has been achieved that should be applauded, MAS state that:
“Under the new rules advisers will have to make it clear whether the advice they offer is independent or restricted.
On Independent status it says:
An adviser must:
- be genuinely independent and free from any influence that could stop them recommending the best product for you
- make a fair and comprehensive analysis of the relevant products available and recommend what they consider to be a suitable one for you in the light of your circumstances and needs
Any advice that doesn’t meet this standard must be clearly labeled as restricted.
Advisers will only be able to call themselves IFAs if they can demonstrate to the Financial Services Authority (FSA) that they review all the suitable products in a market and give fair, unbiased and unrestricted advice.
Many firms who may aspire to the Independent status will find it a high bar they may not wish or have a need to hurdle. After all it is about what is best for YOUR clients
The restricted model should not be seen as a stigmatization, after all as MAS clearly state “this doesn’t mean they will be any less professional – they will still need to follow the new rules for adviser charging, exams and professional standing described above. It also doesn’t necessarily mean that the best product for you will not be amongst the products they provide advice on. It simply means that they will be looking at a narrower range of products when considering what’s best for you.
It is good to see that some plan of awareness action is starting to evolve; this is in no small part due to the efforts of many as well as ourselves. We met with the FSA and presented our survey findings to them in April. But, is this document really an improvement in clarity?
I think this will be too little and too late. With a little over 111 days to go I think many advisers will be starting to despair that what is being done in the name of the consumer is being so poorly communicated to them by the regulator.
Gill Cardy is on record as saying “it was a major improvement on the FSA’s previous version and showed the regulator had taken industry views to heart…. IFAs must top it up with their own tailored messages to clients explaining their charging structure” and she is right because it is clear the FSA in its dying days will not.
There is some confusion at best and an almost deliberate lack of clarity at worst in the FSA leaflet version 2 published a few days ago that I think really should have been clearer. Section 1 deals with how much advice will cost.
It states: “You may not have realised, but if you have received financial advice you have probably been paying ‘commission’ to your adviser.
This is both surprising and incorrect, providers pay commission and has been a factored and hard disclosed cost for years to consumers.
Section 2 refers to “The differences between these types of advice are known as ‘independent’ and ‘restricted’ advice. See page 5 for more on independent and restricted advice”, yet when turning to page 5, clarification defeat is snatched from the jaws of victory with the statement that:
“From 31 December 2012, financial advisers that provide ‘independent’ advice will be able to consider all types of investment products that might be suitable for you. They can also consider products from all firms across the market.
An adviser will have chosen to offer ‘restricted’ advice where they can only consider certain products, product providers or both.
Your adviser will have to clearly explain what they can advise you on”.
And so clearly the FSA is either unable or unwilling to. This awareness creation exercise could have been so much clearer, after all if the MAS can get it right, surely a bit of co-operation could have worked wonders in preparing the guide
Section 3 states quite correctly that “Some investments can be hard to understand. So we are increasing the standards of qualification that financial advisers have to meet to ensure their knowledge is up to date.
Financial advisers will also have to sign an agreement to treat you fairly.
We will monitor firms to make sure they meet these new standards”.
All good stuff, but this is another opportunity lost as the FSA will not asses the suitability for a ‘recommended product’ to be deemed fit for purpose.
The leaflet closes with some good advice, but only if you have an adviser relationship:
“What should you do now? Before 31 December 2012, ask your adviser how much they are currently charging you for their advice and how much that same advice will cost in the future. They should be able to explain how these changes will affect you and your finances, and whether they will offer independent or restricted advice.
But what if you cannot afford fees or want to pay fees or have no adviser? A mass market consumer in fact.
Well you are really stuck, and that is the last failing in the document, it gives a list of useful contacts but not a reference to Unbiased.
As the song goes “Reading, writing, arithmetic are the branches of the learning tree”.
The FSA could have made the whole RDR consumer awareness process: “As simple as, do re mi. A B C, 1 2 3” but once again did not.