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RDR: Clients urged to lobby FSA on 'restricted advice' label

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by Danielle Levy on Apr 14, 2010 at 10:02

RDR: Clients urged to lobby FSA on 'restricted advice' label

One leading consultant is urging wealth management firms to ask their own clients to write to the Financial Services Authority (FSA) and complain about the ‘restricted advice’ label that may be imposed on them by the retail distribution review (RDR).

This advice comes from Bruce Weatherill, founder of Bruce Weatherill Executive Consulting. He argues that wealth managers who will no longer be able to take on the ‘independent advice’ label because they do not advise on life products or pensions should explain to clients what the measures could mean.

If clients dislike the implications they should be encouraged to complain directly to the FSA and even form a pressure group, he suggests.

‘This is about the voice of the client. The FSA won’t listen to banks because they see them as too self-serving. Something I am encouraging the British Bankers’ Association and the Chartered Institute for Securities & Investment to do is to contact clients. If clients don’t like it and don’t understand it, the FSA has got work to do,’ Weatherill said.

A state of unease

The FSA has left a number of firms in a state of unease following its decision to maintain its definition of ‘independent advice’ in the 10/06 policy feedback statement on the RDR.

The paper said that private client firms can retain their independent label if they can show they are specialists or operate in a niche.

Under this demand they will still need to show that certain products within the FSA’s definition of ‘retail investment products’ are not relevant to the investment needs and objectives of their clients.

However, the FSA added that life products and pensions should be considered ‘potentially suitable products for the vast majority of retail clients’.

Weatherill’s views are not shared by everyone, however. Philip Burbidge, head of legal and compliance at Cheviot Asset Management, believes there needs to be more clarity from the FSA before clients are approached to offer their views.

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3 comments so far. Why not have your say?

..has bolted! Why are people complaining about the RDR after the event?

That is the problem with IFAs, and WEALTH MANAGERS, they suffer form strategic blindness.

If all you offer is a platform or fund management thingy then you are not providing advice across the board and that means it is restricted.

Simples!

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...has been spotted overhead.

There seems to be a great deal of misunderstanding all round here, possibly caused by overly simplistic language used by the FSA, but compounded by assumptions made by practitioners.

'Independence' seems to have taken on a meaning beyond its true value and 'restricted advice' has mistakenly become a pariah term to be avoided, i.e. one held up as 'good', the other as 'bad'.

Perhaps its just down to the terminology?

A good analogy would be the medical profession (but equally valid for accountants and solicitors etc.). By FSA's reasoning 'Independence' would be represented by your GP, 'restricted advice' would be supplied by specialist consultants. But this is nonsensical...

Who wants all their treatment delivered by their GP? For the majority that's OK, but for those with needs out of the ordinary, they get referred or refer themselves. In financial services that would be your typical wealthy, complex or single need client...

The problem for discretionary managers is that they are 'specialists' but with a label that could be inappropriate in the circumstances. The fault for this lies with the FSA as it fails to distinguish between specialist advice utilising a whole of market approach within that specialisation, and that which is truly restricted in the sense that it is restricted to a single or few providers.

As it stands, 'restricted advice' in the context of the RDR is somewhat misleading, questionably fair and not clear - and I'm referring to the effect on clients not advisers/managers.

Independence is actually a function of agency. If you are the agent of the client (and paid directly by them and only them) then you are independent. If you are the agent of (and paid by) a provider you are not. The rest flows automatically from this.

With that in mind, there are then 4 services provided, 'Independent General', 'Independent Specialist', 'Restricted General' and 'Restricted Specialist'.

Not necessarily 'simples' but fairer to clients and advisers/managers and more relevant to the real world.

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Bill

Apr 14, 2010 at 12:35

I think what is vitally important here is to remember one thing ...

THE CLIENT.

Our fiduciary responsibilities to clients requires the consideration of all their financial circumstances.

Where businesses 'specialise' in certain aspects of advice, this is limited from a holistic client perspective.

I think the FSA is absolutely right and is heading in the right direction.

However, A term that may be more palatable to the different business groups in the industry could have been limited advice or full advice rather than independent and restricited, as the latter terms have more of an association of being Life Company/Product Provider related or being independent (ie not Life Company/Product Provider related).

That way, whether business are independent or not, clients would better understand if they are receiving limited advice or full (holistic) advice.

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