A thematic review published today by the Financial Conduct Authority (FCA) shows that most advisory firms describing their service as ‘independent’ appeared to use the description accurately. The FCA is also clarifying certain issues to provide further support for those firms that remain unsure what standards they must meet to be able to call themselves ‘independent’.
The Retail Distribution Review (RDR) came into force in 2013 to improve outcomes for consumers by enhancing standards of professionalism, removing key biases, and ensuring the cost of advice is clear.
One of the central elements of the RDR was that financial advisers operate as either ‘restricted’, where they are only able to recommend certain products and providers; or ‘independent’, for which they have to objectively consider all types of retail investment products to meet the investment needs of a retail client.
Nick Poyntz-Wright, director of long-term savings and pensions at the Financial Conduct Authority, said:
"Most firms are using the ‘independent’ tag correctly, which is important in helping consumers understand what service they are buying.
"But, for those firms who remain unsure, we are providing further help so that they can better understand the standards they need to meet."
In response to calls from the industry for further clarification on the standards required for advice to be ‘independent’, the FCA has published examples of good and poor practice within its review. In addition the FCA is today releasing a video on the issue of independence for financial advisers introduced by Clinton Askew, a financial adviser who sits on the FCA’s Smaller Business Practitioner Panel. Together the examples in the review and the video will address a number of topics, including:
- providing advice on all retail investment products in a relevant market
- referrals to other advisers
- the use of product panels
- the use of platforms
- the use of model portfolios, which are a collection of funds with a certain asset allocation typically designed to meet a specific risk profile and
- referrals to discretionary investment services.
This latest RDR-focused review from the FCA is part of the second of three cycles of thematic work, looking at how firms disclose their advisory services to their customers and whether firms that are describing themselves as ‘independent’ are acting independently in practice.
In April, the FCA will be releasing the remaining part of the second cycle of research, which looks at how cost and services are disclosed by advisers.
The FCA has emphasised that it expects firms take on board its findings, review their practices and make any necessary changes ahead of it undertaking the third cycle of research, which is due to begin in the second half of this year.
Notes for editors
- Thematic review, supervising retail investment advice: Delivering independent advice and Video: Delivering independent advice.
- Thematic review, Supervising retail investment advice: how firms are implementing the RDR (July 2013).
- FCA factsheet 007: Disclosing your firm’s charges and services.
- Finalised Guidance: 12/15 – Retail Distribution Review: independent and restricted advice’ (June 2012).
- More information on the FCA’s Smaller Business Practitioner Panel.
- On 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
- The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
- Find out more information about the FCA.