The best laid plans of mice and men…

11th July 2012

In the past Financial Advice has too often been a euphemism for the ‘sale of a product’. High levels of commission on certain investment products have led to numerous mis-selling scandals, which have served to undermine public trust and confidence in the financial services sector

Of course, there are numerous firms of Financial Advisers (IFAs), Financial Planners and Wealth Managers who operate in a professional manner. However, how can the average consumer be sure that they are dealing with one of the good guys?

Winter Mouse, image courtesy of Dawn Marshall, Flickr

From 31 December 2012, new rules will come into play that will change the way in which consumers receive pension and investment advice.  The new rules will apply to all advisers regardless of the type of firm they work for (banks, product providers, IFAs, Wealth Managers and Stockbrokers).

The intention behind the new rules is to create an environment where consumers:

  • Are offered a transparent and fair charging system for advice;
  • Are clear about the service they will receive; and
  • Will be advised by a highly respected professional.

Commission is to be replaced with Customer Agreed Remuneration. The adviser and client will have to agree, in advance, what services will be provided and the associated cost.

Financial Advisers will be required to achieve higher standards of qualification. Furthermore, they will have to demonstrate that they are keeping their knowledge up to date with a program of Continuing Professional Development (also known as CPD). Only by doing so will they be able to qualify for a Statement of Professional Standing, which must be renewed every 12 months and is (in effect) a licence to provide advice.

The Financial Services Authority (FSA) has published a consumer guide titled “Changes to the way you get financial advice”.

It is regrettable that the FSA has been forced to impose rules to make these changes happen. It would have been far better if the financial services industry got its house in order voluntarily.

Nevertheless, the Fortitude team welcome the requirements for advisers to be better qualified and charges to be transparent and fair. As both a Chartered and Accredited Financial Planning Firm we already work in a way that is consistent with the new rules.

What does concern us is the proposed change to the definition of ‘independent advice’ and the introduction of a new category – the Restricted Adviser.

Many firms of independent financial advisers feel that meeting the new definition of ‘independence’ will be too hard and it is possible that they will decide to become ‘restricted’ instead.

This means that the ‘restricted advice’ will cover a very broad church and, once again, it will be difficult for the consumer to differentiate between a better qualified adviser and a better qualified ‘salesperson’.

There is a serious risk that the new order will ring the death knell for independent financial advice and that the new waters of restricted status will be sufficiently muddy to hide the sharks, who will continue to prey on the ignorant and vulnerable.  Caveat emptor will continue to apply with the onus very much on the consumer to be clear about what is being purchased and how much is being paid.

“But Mousie, thou art no thy lane, In proving foresight may be vain: The best-laid schemes o’ mice an’ men. Gang aft agley, An’ lea’e us nought but grief an’ pain” Robert Burns

If you would like more information on RDR and the incoming changes please visit the Financial Services Authority (FSA). If you would like to speak to an adviser about the change and how they will affect you and your investments, please get in touch