The Institute of Chartered Accountants in England and Wales (ICAEW) has published an updated Code of Ethics with specific guidance about dealing with financial advisers.
This updated Code comes ahead of the implementation of the Retail Distribution Review (RDR) on 31st December 2012, when financial advisers will either be ‘independent’ or ‘restricted’.
The core principle behind Accountants who are members of ICAEW providing investment business referrals is that they have been objective and give objective advice. This means making referrals to financial advisers who are in a position to give objective advice themselves.
Under the current Financial Services Authority (FSA) rules, this means Accountants should only refer to Independent Financial Advisers (IFAs), the only type of financial advisers who are in a position to give objective advice.
It is currently possible for an Accountant to refer a client to a financial adviser who operates on a ‘multi-tie’ basis, as long as they first make an assessment to ensure the adviser is dealing with a large majority of the relevant market for the type of advice required.
The updated Code
Once the Retail Distribution Review is implemented at the end of this year, members of ICAEW will need to understand the difference between independent and restricted advisers. Advisers offering restricted advice will be all of those not meeting the definition of providing independent advice.
There will be various types of restricted adviser from next year onwards. Some will be tied to a single product provider and others will make able to make recommendations based on a review of a number of providers. Some restricted advisers will have chosen to focus on a particular market niche.
The revised ICAEW Code says that if Accountants decide to refer their clients to an independent adviser, no further assessment of suitability will generally be necessary.
If Accountants want to refer their clients to a restricted financial adviser, they will first need to make an assessment that the restricted adviser has “demonstrated that they are able to cover a large majority of the products and providers available in the market that is relevant to the client’s needs”.
What this means
Put simply, an Accountant will be able to refer their client to a restricted adviser, but they will need to do a lot of work to prove this was suitable.
It is good to see ICAEW making their requirements clear when it comes to referring clients to financial advisers in the future.
Accountants will be on much safer ground by referring only to independent financial advisers from the end of this year. Whilst the Code does offer scope to refer to some restricted advisers, the work involved in assessing suitability is likely to be substantial – and also risky if the Accountant gets this assessment wrong.
Here at Informed Choice we are committed to providing independent financial advice to our clients once the Retail Distribution Review is implemented on 31st December 2012. We believe independent is the gold standard of financial advice and simply cannot be matched in terms of quality or value by restricted financial advice.
Photo credit: Flickr/ICAEW Press Office
