13th June 2012

Is that all clear to you? FSA RDR finalised guidance now out.

So at last the FSA guidance has been issued, all 16 pages of it. The purpose is to create clarity, at least I have assumed that to be the case. But as with all FSA communications the devil is in the detail and in this case some very non “Plain English”.

Whilst this is no doubt a move in the right direction, why can they not make these communications easy to understand, definitive and unambiguous? Even a simple flow chart or decision tree could help for many in gaining a better understanding.

But with better understanding comes confusion as it makes it easy to expose the faults

The first major area for concern is found in section 2.15 regarding excluding product types from consideration, it states:

“If a firm cannot or will not advise on a particular type of retail investment product, and that product could potentially meet the investment needs and objectives of its new and existing clients, then its advice will not meet the standard for independent advice.

In other words, the justification for a firm excluding types of retail investment products from its range needs to be centred on the client. As an example, the fact that a firm’s professional indemnity insurance policy specifically excludes certain products would not be a valid reason for never advising on such products”.

As one IFA observed. “Well that’s clear then - just because your PI doesn’t cover the risky product does not mean you shouldn’t advise a client to have it? I presume that the FSA are then going to state that we no longer need to have PI cover to trade then? The rest of it clears up some of the mess however”.

The regulator said a firm’s independent status would not be affected if it referred clients for pension transfer or long-term care products.

It said: “Such firms can also make internal or external referrals for advice on non-retail investment products. If a firm does not provide any personal recommendations on retail investment products to a client, and refers them to another firm instead (including to a firm providing restricted advice), this will not affect its independent status.”

So, an “independent” firm can refer clients to a “restricted” firm for advice in an area it does not wish to or is unable to advise upon and still keep independent status.

So a solicitor refers a client to an independent firm that then refers on to a restricted firm? This is madness and will lead to ever worsening confusion at best.

On European regulations, it said: “MiFID II is currently being negotiated in the European Council and parliament and it is not yet clear whether the revised directive will include a definition of independent advice”.

How can a document carrying the title “Finalised Guidance” contain such a wording as “is not yet clear”?

I think there should be an industry prize to the first person who is able to decode this into an easy to understand, plain English document for the very many small IFA firms who do not have the time or resource to do so?

RDR, Panacea Comment