independent advice

7/30/2019 Independent Advice

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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
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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.

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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.

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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]

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