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Independence in the new world of RDR

21 October 2011

Go in search of an IFA who isn't worried about the impact of RDR on their independence, and you'll probably be searching for a while.

However, in a recent speech to the Personal Finance Society Conference in London, Linda Woodall (Head of Investments Department at the FSA) hoped to dispel what she called "a number of misconceptions or misunderstandings" about the impact of RDR on advisers' independence.

"Just because you are independent now," Woodall said, "does not automatically mean that you will be independent in the new world". And, for those advisers entering the FSA's 'new world', one of the biggest concerns is that advisers will have to advise, and in some cases, actually recommend, UCIS to their clients in order to meet the RDR's new independence requirements. This has left many advisers confused about the new regime.

However, in her speech Woodall attempted to address these widespread worries by reassuring advisers that the FSA "expect UCIS to be suitable for very few of a typical adviser's clients, if any". Woodall went further, saying "an adviser's independent status will not be impacted if they never sell these products because they deem them to be unsuitable for their clients".

This statement suffers from circular logic and rather presupposes that UCIS will be unsuitable for all of an adviser's clients.  How can an adviser make such a generalisation about all of their clients?  What if an adviser deems UCIS suitable to some or even just a few of their clients?

The reason UCIS are included in the retail investment product definition at all, Woodall explained, is to ensure that commission is not payable to independent advisers when UCIS are sold on an advised basis. Whilst the FSA's aim may not be that UCIS are sold in any greater numbers, this recognition of UCIS sits uneasily with the idea that independence can be achieved without considering them.

This limited clarification offered by Woodall about the impact of UCIS on advisers' independence under the RDR regime will be welcomed but is unlikely to satisfy many. Furthermore, at a more basic level some advisers have the concern that 'restricted advisers' who do not choose to be independent under the new RDR regime will somehow be seen as less credible, or of a lower standard, than their independent counterparts.

Woodall dismisses this view: "Restricted advisers are still subject to the same professionalism standards. They are also subject to the same suitability requirements and so the quality of advice should be to the same standard as independent advisers. The difference is simply the breadth of the recommendations the adviser can make, and that they need to disclose to their clients how their advice is restricted".

The FSA is clearly working hard to dispel industry rumours about RDR, and to ensure that advisers understand the upcoming changes and what they mean for their firms. However, whilst Woodall and the FSA may have data suggesting that advisers are "well underway to meeting [RDR's] requirements", it still seems there is a little way to go before those requirements are fully understood, and embraced, by the industry.