FCA Thematic Review – RDR – Delivering Independent Advice

RDR has resulted in rules to improve the clarity with which firms describe their investment advice services to consumers. The rules set out what is expected of firms that describe themselves as either independent or restricted (COBS 6.2A). 

The second stage of the FCA’s RDR thematic review has been published and is snappily titled ‘TR14/5: Supervising retail investment advice: Delivering Independent advice (March 2014)’ and comes with a free accompanying video (12 mins). Both can be accessed here .

The report is relatively short (23 pages), is intended to clarify what the requirements in key areas are and gives good and poor practice examples.

Here is a very brief summary of the report but we would recommend all principals and advisers read the document in full:

  • Independent advice rules state that the recommendation should be ‘based on a comprehensive and fair analysis of the relevant market and be unbiased and unrestricted’;
  • Advice should be genuinely free from bias towards a particular solution;
  • All Retail Investment Products must be considered;
  • If an independent service has been promised then it must be delivered.

In further guidance:

  • The FCA clarify what is meant by a relevant market;
  • They give guidance on how panels can be used, the process and due diligence requirements;
  • Within the Platform section they state ‘It is likely to be very rare, if possible at all, that a firm could use one platform for all clients and meet the independence rule………..’ As mentioned further information and examples of good and poor practice are included in the document;
  • They give 6 key points to consider if your firm uses a platform – research, review, due diligence, appropriateness and off-platform solutions, limitations, process etc;
  • There are key messages under the model portfolio section including construction, a process to avoid restrictions, alternatives and adapting them;
  • There are key messages if firms make personal recommendations for clients in relation to discretionary investment services, including consideration of a wide range of providers, ensuring there is a process in place, ensuring advisers do not restrict the offering and making clear clients best interest rules are followed.

Some of the common failings found during the review were:

  • Firms not considering and/or not having the ability to advise on all retail investment products (RIPs);
  • Firms adopting a single platform and not carrying out sufficient research and due diligence on the other options available and/or not considering off-platform investments; 
  • Advisers referring clients to other advisers (either externally or within their own firm) for advice on certain RIPs (e.g. income drawdown) and hence breaching the independence rules;
  • Networks failing to ensure that all appointed representatives (ARs) are meeting the independence requirements.

The FCA uses a quote in the document from one firm which was reiterated at a recent conference we attended, in that:

‘independence is a state of mind – you just need to keep an open mind and consider all the options’.

We will be issuing a separate article on the FCA’s third stage of the thematic review, dealing with disclosure, imminently.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

There are no revelations in this paper; it is completely consistent with what has been said previously by the regulator.  The FCA has now given the industry clear guidance and stated what is expected of independent firms. The biggest immediate challenge for firms in 2014 and onwards is accurately and sufficiently evidencing their independence.

Action Required By You

  • Please examine the bullet points above carefully; they highlight some important points e.g. do you understand ‘relevant markets’, do you have ‘experts’ in your firm that only advise on specific products?
  • Ensure that all principals, investment advisers and key members of staff read the detail in the TR14/5 document and watch the associated video;
  • Firms should develop processes that become a part of the culture in the firm; 
  • Review your processes and stress test them to ensure they are robust enough to support your RDR Independence status;

If in doubt please request that ATEB conduct an ‘Independence Review’ of your firm by contacting us here

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About the Author

Steve is an ATEB Director and has a deep understanding of all matter regulatory, built up over his 30 years + in the industry. With a training background and a technical brain, he overseas numerous complex projects and client implementation work.

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