The Financial Services Authority (FSA) has published its finalised guidance on the rules for the provision of independent and restricted financial advice from 31st December 2012.
Once the Retail Distribution Review is fully implemented at the end of this year, financial advisers will need to describe their services as ‘independent’ or ‘restricted’.
The finalised guidance from the FSA describes the rules required for advisers in providing either type of service to their clients.
The new standard for independent financial advice is intended to ensure that it is genuinely free from bias towards particular solutions. Advice that does not meet this new higher standard of independence will be ‘restricted’.
Because any advice that is not ‘independent’ will be ‘restricted’, restricted financial advice will come in several different forms. For this reason, it will be important to treat all restricted advisers with a great deal of care, as the nature of their restrictions will need to be properly understood and considered.
From 31st December onwards, independent financial advice will need to be based on a comprehensive and fair analysis of the relevant market. It will also need to be unbiased and unrestricted.
The ‘relevant market’ covers a wide range of different financial products, which means that an independent financial adviser will need to carefully consider lots of different options before reaching their conclusions. For this reason, financial advisers without access to a strong research team could struggle to carry out the required analysis.
However, the relevant market will also be shaped to some extent by the objectives of the investor. The FSA uses an example of an ethical investor where non-ethical investments would clearly be unsuitable and therefore would not need to be considered.
Whilst independent will remain the gold standard of financial advice from 31st December 2012 onwards, there will be some restricted advisers who are able to offer a comparable service in certain specialist areas of advice.
Here at Informed Choice, we are committed to providing independent financial advice as we believe this will deliver the best outcomes for our clients.
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