independent advice
TRANSCRIPT
-
7/30/2019 Independent Advice
1/4
VALIDPATH LTD IS AUTHORISED AND REGULATED BY THE FINANCIAL CONDUCT AUTHORITY www.validpath-network.co.uk
Independent Advice
Since December 31st 2012, the RDR requires practitioners to
Disclose Independent or Restricted Status
If one were to take at face value the
pronouncement of the various financial
pundits in the UK media, or indeed the
spokesmen for various product-providers,
one might conclude that something
drastic has happened to the regulators
definition of, and standards for,
independent financial advice.
This is very far from being the case.
Indeed, to describe the bulk of provider-
sponsored media comment as misleading
would be to understate the position. Its
worth looking again at the actualposition,
in order to be clear in our understanding.
Firstly, the FCAs definition of
independent advice, remains exactly as it
was previously defined:
..a personal recommendation to a
retail client in relation to a retail
investment product where the personal
recommendation provided meets the
requirements of the rule on independent
advice.
No change there, then. So now lets
ask ourselves what the FCA actually
means by independent advice. The
definition remains the case that it is,
(a) based upon a comprehensiveand fair analysis of the relevant market
and, (b) unbiased and unrestricted.
As you might expect, there is more
to it than this, but so far, the definition of
independence remains exactly as it
always was. With the exception of the
relatively minor caveat I am about to
describe, this means that the FCAs
requirements for Independent Financial
Advisers are no less, nor more, rigorous
than they have always been. If we have
actually been discharging our
professional duties correctly in the past,
then there is no substantive reason why
we should not continue to do so under
the new regime.
So what has changed, then? The
answer is that the FCA has refined its
definition of retail investment
products (which form the subject of
independent financial advice) to include
the following:
Any other designated investment
which offers exposure to underlying
financial assets, in a packaged form
which modifies that exposure when
compared with a direct holding in a
financial asset.
Now, it would be misleading to say
that this revision to the FCAs listing of
retail investment products is
insignificant. It does, for example, bring
into the frame UCIS, which we are not
allowed to use for retail clients. It
potentially opens up our consideration
for a wider consideration of investment
products beyond the usual suspects - but
the FCA is not expecting practitioners to
reinvent the wheel for every client we
advise. It is not unreasonable to expect
that, as professionals, we have a view on
certain categories of investment - thekind of view which might, based upon
reasonable assumptions, exclude them
from our consideration for general use.
The fact that we are (a) aware of them,
and (b) maintain the option of using
them, even if we acknowledge that this
might be a rare event, does not impact
adversely on our independent status.
In theory at least, there is nothing
here to trigger the wholesale
abandonment of the independentadvisory model.
CONTENTS
1
INDEPENDENCYWhats changed under the RDR
which might make independent
advice less attractive?
2SO WHY ALL THECHANGE?Traditionally independent adviser
firms are now relinquishing that
status or at least wobbling.
Why?
3CONVICTIONS?The value in what we lies in
striking a balance between our
convictions and what is
commercially viable
4EQUIPPING & ENABLINGAt ValidPath, thats what we do.
So weve developed our
compliance structures and
resources with the specific aim of
supporting our IFA members to
deliver only the best financial
outcomes to their clients.
PRACTITIONER UPDATE SPRING 2013
http://www.validpath-network.co.uk/http://www.validpath-network.co.uk/ -
7/30/2019 Independent Advice
2/4
VALIDPATH LTD IS AUTHORISED AND REGULATED BY THE FINANCIAL CONDUCT AUTHORITY www.validpath-network.co.uk
Where markets are characterised byself-interest and opportunism...
The abandonment of
the independent
advisory model
As I write this update, the financial
media comment is predominantly about
the contraction of the financial
intermediation market.
There is no doubt truth to this
assertion. Certainly, the rumour-mongers
may well have caused a stampede of exits
from the market in general, and
independency in particular. Towards the
middle and end of 2012, several largeproduct-providers were exerting
themselves to cash-in on the anxieties
amongst IFAs in order to capture
restricted advisers which would sell their
products. Deals were being done which,
for those firms which did not set their
clients interests first, must have seemed
too-good to refuse.
One step removed from this
particularly unpalatable exhibition of
self-interest, were the business consultantsand consolidators, interested in hoovering
up assets under management, in relation
to those advisers who had simply lost the
enthusiasm to continue under the new
regime. It is difficult to think that this
kind of activity would have been
unanticipated by the FCA, and it must
fall under the heading of unintended
consequences. Unfortunately, whilst
regulation professes to have the clients
best-interests at heart, the practical reality
was always going to be something that,
on the ground, would look suspiciously
like churning.
Notwithstanding the predictability of
such phenomena, in a marketplace which
has never exactly shone out as a beacon
of morality, the collapse in the
independent advisory market has
neverless been a little shocking.
At a recent FCA roundtable meeting
with representatives of other national
networks, the same perspective was
shared by all those firms: restricted
advice was regarded as the natural or
easy option, because it was felt that
clients were not sufficiently discerning of
the merits of independent advice.
It seemed that this was a
depressingly inadequate view of the way
in which things should work. Firstly,
there was the issue of belief - if we have
pursued a course of action in the past,
because we believed that it had a higher
probability of deliveringbetter value
outcomes, why would we change that
position simply because the regulator
required us to be more explicit in our
disclosures?
Furthermore, if the client has an
inadequate appreciation of the merits of
independent advice (contra anything else
that isnt independent) whose fault is
that? If IFAs have, historically, either
been mealy-mouthed about the
substantive benefits of independent
advice, or (worse still) have shot
themselves in the foot when exemplifying
that kind of standard, then of course
clients may be a little lacking when it
comes to discernment. Blaming the
client for a degraded service does not
seem an honourable course of action!
It seems to me that something which
is given up so casually, and with such little
effort to protect or promote it, is probably
something that those firms placed little
importance on in any case. That is to say,
the wholesale abandonment of the
independent model has occurredamongst firms which, at best, paid lip-
service to its merits in any case, simply
regarding it as branding.
ONLY THE BEST
OUTCOMES?WHERES YOUR FOCUS?There has to be some kind of
rational, considered ideology on
which we base our advisoryproposition - otherwise,
everything is merely pragmatism
and self-interest.
The RDR is an encouragement
towards a higher view of what we
do - unfortunately, the response of
many larger service-providers
appears to negate the FCAs goals.
If our focus is on the bestoutcomes for our clients, then
well want to reserve our right to
use the best tools available to us.
That requires independency.
PRACTITIONER UPDATE SPRING 2013
http://www.validpath-network.co.uk/http://www.validpath-network.co.uk/Articles/260225/ValidPath/about_us/Factoids.aspxhttp://www.validpath-network.co.uk/Articles/260225/ValidPath/about_us/Factoids.aspxhttp://www.validpath-network.co.uk/Articles/260225/ValidPath/about_us/Factoids.aspxhttp://www.validpath-network.co.uk/Articles/260225/ValidPath/about_us/Factoids.aspxhttp://www.validpath-network.co.uk/Articles/23701/ValidPath/about_us/Good_reasons_to.aspxhttp://www.validpath-network.co.uk/Articles/23701/ValidPath/about_us/Good_reasons_to.aspxhttp://www.validpath-network.co.uk/Articles/23701/ValidPath/about_us/Good_reasons_to.aspxhttp://www.validpath-network.co.uk/Articles/23701/ValidPath/about_us/Good_reasons_to.aspxhttp://www.validpath-network.co.uk/http://www.validpath-network.co.uk/ -
7/30/2019 Independent Advice
3/4
VALIDPATH LTD IS AUTHORISED AND REGULATED BY THE FINANCIAL CONDUCT AUTHORITY www.validpath-network.co.uk
Is our advisory model...
Built on Conviction?
We live in a relativistic culture where, it appears, convictions
may be in short supply. Yet, we do somehow manage to build
objectivistic principles into our business practices and advice
models. dont we?
Of course, the easy way to ethics or professional standards is
to espouse those practices which are more likely to deliver a better
set of results. Or, to phrase it another way, steer clear of those
practices which are likely to leave our clients, and therefore
ourselves, in the mire. On one level at least, a degree of
enlightened self-interest does seem to introduce some value for all
concerned, but it would be a sad day if all our decisions about
our clients welfare were based entirely upon our own selfish
considerations.
In practice, this kind of strategy is less easy to pursue in
financial markets than one might think: basing our practices
upon the higher likelihood of better future outcomes, requires us
to engage in at least a degree of crystal-ball gazing. And thats a
notoriously unreliable basis for anything - so it is quite possible,
that a given set of practices, based upon anticipatedresults, will
turn out to be a poor choice for all concerned.
So, that brings us back to the idea of convictions, that IFAs
should be building their businesses upon principle. That, at least,
forms a core to the FCAs regulatory framework, that there are
certain inviolable principles which should underpin everything
that we do for our clients, and indeed which may be applied to
almost every circumstance. We have a choice with the FCAs
eleven principles - we can use them as the basis for some kind of
compliance framework, to ensure that we are keeping the
regulator happy (and off our backs!), or we can choose to believe
in them, and apply them to the real business of looking after our
clients. If we choose to do the latter, rather than the former, then
we are acting out of conviction.
It is our contention, at ValidPath, that the merits of the
independent advice model do, actually, form the basis for a
dependable set of convictions about what is best for theconsumer. One can have professional advisers following a
restricted advice model, and professional advisers adopting an
independent one. It is disingenuous for proponents of the
restricted model to contrast good restricted advisers against bad
IFAs, in order to argue that this justifies their case - weve heard
this line from several sources.
The realargument goes along these lines: all things being
equal, if one compares two comparably expert advisers, both with
good training, both with reasonable ethics, is the independent
advisory model likely, on balance, to lead to a better set of
outcomes for the client, when compared with the restricted
model?
And the honest answer is that it has to. All the way through
the advice process, the restricted adviser has to have in the
forefront of his or her mind the fact that they only have a limited
palette of colours to paint with. It may be a reasonably broad
palette, but it is, by definition, restricted. Whatever such an
adviser has to say, whatever their expertise, that is the simple
limitation under which they labour.
And, all things being equal, the IFA never once, not at any
stage in the advice process, has that particular limitationgoverning or limiting any aspect of his or her advice. This has to
result in a better outcome for the client.
CONVICTION POLITICIANSA CASE-STUDYIn all the recent media coverage of Margaret Thatchers
death, the repeated phrase has been that she was a
conviction politician.
We are not here to debate the correctness of her
policies, but this phrase interests us: conviction
politician. This raises the prospect of an alternative
way of doing politics - which, at the other end of the
spectrum would, presumably, be pragmatism
politician. The one follows a course of action because
they believe it is the right one - whereas the other does
so because they believe it will work. Rightness or
wrongness simply does not come into it - other than as a
way of interpreting the success, or otherwise, of theoutcome.
PRACTITIONER UPDATE SPRING 2013
http://fshandbook.info/FS/html/FCA/PRIN/2/1http://www.validpath-network.co.uk/http://fshandbook.info/FS/html/FCA/PRIN/2/1http://fshandbook.info/FS/html/FCA/PRIN/2/1http://fshandbook.info/FS/html/FCA/PRIN/2/1http://fshandbook.info/FS/html/FCA/PRIN/2/1http://www.validpath-network.co.uk/http://www.validpath-network.co.uk/ -
7/30/2019 Independent Advice
4/4
VALIDPATH LTD IS AUTHORISED AND REGULATED BY THE FINANCIAL CONDUCT AUTHORITY www.validpath-network.co.uk
Its what floats our boat...
Equipping & Enabling
We get to hear plenty of stories about
how other financial services networks
operate.
A very significant proportion of the
activities of some of the larger firms
appears to be geared towards business
prevention. The focus is on what their
Members cantdo, rather than on
exploring what they shouldbe doing, and
how best to do it.
You see, its always easier to translate
business practices into a fifty-point
compliance checklist than it is to
encourage and support the best practices.
Of course, the reality is that none of
us can afford to be smug - all of us are on
a learning curve, and there is always going
to be room for improvement. And in the
FCAs RDR World, all of us are still
novices.
Despite all of that, theres a huge,
quantum difference between ValidPaths
supportive, can do culture, and the kind
of repressive practices we encounter
elsewhere - especially those that appear to
beat any aspirations towards a genuinely
independent model out of their advisers.
In a marketplace which is sofrequently characterised by a kind of
crushing, self-serving mediocrity, were
always on the lookout for excellent,
aspirational financial-planners, the kinds
who are always looking to improve their
service to clients, and seek to deliver only
the best outcomes.
If you are a professional, looking for
that kind of environment, then perhaps
its time to get in touch.
On the other hand, if you are
reading this, and are an investor, or a
would-be customer, looking for
dependable, great-value independent
advice, then the chances are that we
might already have someone who can
help you.
ValidPath have a network of
financial-planners and wealth-managers
across the UK, all of whom are wholly
committed to their independent status,
and have attained Diploma level of
qualifications and above. A growing
proportion of these have obtained
Chartered Status.
All of this makes ValidPath a natural
partner for establishing JVs, which may be
an attractive prospect for Accountancy or
legal firms, seeking to establish their own
client advice propositions, but without the
risks associated with a wholly in-house,
DIY model.
And, we have an active, and growing
internal market - firms with areas ofspecialist expertise which can sell their
services to each other, covering such areas
as:
SSAS
Equity Release
Actuarial services
Marketing
HNW tax-planning strategies
Inheritance Tax and estate
planning
Independent Financial Advice is, in
our opinion, the jewel in the crown of the
UKs financial intermediation market.
When delivered well, by ethical firms
committed to an independent ethos, it
produces outcomes for clients which are
consistently excellent. At ValidPath, our
energies and focus are geared towards
supporting this advice model.
IFA CENTREValidPath Ltd are founder-
members of the IFACentre, run
by the experienced practitioner,
industry-commentator and
lobbyist, Gill Cardy.
IFACentre
Is the trade body representing
independent advisers in the UK,
and promoting the highest
standards for client advice.
ValidPath is the networkfor
independent financial advisers in
the UK, focusing on:
financial planners
wealth-managers
accountancy firms
ValidPath Ltd
Unit 16, The Globe Centre,
Wellfield Road, Cardiff CF24 3PE
Tel. 02920 494495
Fax. 02920 465341
Email. [email protected]
PRACTITIONER UPDATE SPRING 2013
http://www.validpath-network.co.uk/Articles/289399/ValidPath/about_us/RDR_enlightenment.aspxhttp://www.validpath-network.co.uk/Articles/273458/ValidPath/about_us/Building_something_that.aspxhttp://www.validpath-network.co.uk/Articles/273458/ValidPath/about_us/Building_something_that.aspxhttp://www.validpath-network.co.uk/Articles/289399/ValidPath/about_us/RDR_enlightenment.aspxhttp://www.validpath-network.co.uk/Articles/289399/ValidPath/about_us/RDR_enlightenment.aspxmailto:[email protected]:[email protected]://www.ifacentre.org.uk/http://www.ifacentre.org.uk/http://www.validpath-network.co.uk/Articles/273458/ValidPath/about_us/Building_something_that.aspxhttp://www.validpath-network.co.uk/Articles/273458/ValidPath/about_us/Building_something_that.aspxhttp://www.validpath-network.co.uk/Articles/289399/ValidPath/about_us/RDR_enlightenment.aspxhttp://www.validpath-network.co.uk/Articles/289399/ValidPath/about_us/RDR_enlightenment.aspxhttp://www.validpath-network.co.uk/http://www.validpath-network.co.uk/