Streamlined Advice: The Third and Final Part

The Adviser Rules

 To protect consumers, the new rules are very keen on transparency. And so are we!

Any firm providing personal advice through a streamlined service will need to comply with the adviser charging rules. These rules specify that any personal recommendations (or related services) that are provided to retail clients in relation to retail investment products must be paid for by “adviser charges”. This means that any other type of  commission, remuneration, or benefit of any kind in relation to personal recommendations are not permitted.

The adviser charges should always be transparent and no charges should ever be concealed by the adviser. The adviser charges will also need to be “reasonably representative” in relation to the service being provided.

A firm has to consider whether, when taking the total charges to the retail client into account, the personal recommendation to the retail client will be reasonable and of value to the client. This will allow the firm to ensure it is looking out for the clients best interests (Principle 6).

At RiskSave our Appointed Representatives have low cost transparent fees as part of our commitment to PRIN6 and Digital Processes often allow our Appointed Representatives to offer services at a fraction of the cost of a traditional network.

Complaints, redress and compensation

The rules for firms regarding how to handle complaints and the areas that are covered by the Financial Ombudsman Service are set out in the FCA Complaints Sourcebook (DISP). The rules specify how a firm is expected to handle complaints, for example, the requirement for a firm to deal with complaints promptly and fairly in the first instance and to provide a final response to the consumer within eight weeks.  Firms will need to ensure they inform clients about their right to the Financial Ombudsman Service.

Consumers who use streamlined advice services could possibly have recourse to the FSCS, and consequently the clients should be informed about the FSCS (and how to contact them).

Professional standards

The FCA has a training and competence regime that aims to support consumers by making sure the financial services workforce is appropriately qualified and properly regulated.

It is required that a firm ensure that any member of staff who is capable of making a personal recommendation (in their capacity at the firm) is duly qualified to do so.

The FCA states that there are three main options available to firms in considering the role of an employee to support a streamlined advice process, which are that:

·       Option 1: there is no employee involved in the provision of the personal recommendation;

·       Option 2: a retail investment adviser takes the client through the streamlined advice process;

·       Option 3: the client has access to an employee who can answer questions of a purely factual manner and help clients through the process (no personal guidance).

The requirements on appropriateness

The FCA has stated:

“If a client wants to purchase a MiFID financial instrument from a firm providing investment services in the course of MiFID or equivalent third country business not involving a personal recommendation or portfolio management, the firm will need to consider the rules on appropriateness.”

Appropriateness can be determined through an “appropriateness assessment”. This will require the firm to obtain information about a client in order to determine whether the client has the sufficient knowledge and experience in the investment field relevant to the specific product/service offered, to enable  the firm to properly assess whether the service/product is appropriate for that client. Important aspects of the appropriateness test will be whether the client has sufficient knowledge/experience to understand the risks that are involved with that service/product.

The FCA expects more rigorous appropriateness tests to be completed where a complex financial instrument is being offered to less experienced clients.

If the firm believes that the product/ service is not appropriate for the client, then the firm must warn the client of this decision. Additionally, the firm must also warn a client if the client does not provide the firm with enough information to determine appropriateness.

Application of suitability requirements to discretionary investment management

“Model portfolios that allow clients to buy a portfolio without the use of personal recommendations”, these model portfolios have started to be developed. The FCA expresses that they are welcoming to new innovation, but, they remind firms to be aware of the requirements that are set out in the FCA and MiFID rules for the provision of discretionary investment management services, the firm is required to obtain:

·       the client’s knowledge and experience in the investment field relevant to the specific type of service;

·       the client’s financial situation and ability to bear losses; and

·       the client’s investment objectives including risk tolerance.

Obtaining these will ensure the firm is able to ensure when it re-balances a model investment portfolio on a discretionary basis each decision to trade will be suitable for the client and meet the client’s risk tolerance and ability to bear losses.

Customers are unwilling to discuss / disclose their wider financial circumstances

A firm must never discourage a client from providing the information required for the purpose of assessing suitability. A customer may choose not to disclose information, which may have a number of consequences:

·       it may be possible for the firm, with the customer’s agreement, to focus the scope of its service to fit with the customer’s request and is considered suitable with the information given;

·       if the customer does not provide sufficient information to enable the firm to take a suitable decision to trade for the client then the firm must not provide portfolio management services to the client and should inform the client of this;

·       the client may ask the firm to provide another service on a non-advised basis (e.g. arranging a deal for the client or dealing as agent for the client).

Regardless of whether the firm provides a service on an advised basis or not, it will still need to consider the client’s best interests rule and if required, to assess appropriateness, when providing a different service.

How can RiskSave help?

Thank you for reading the final piece of our three part series, if you would like to understand how these rules affect your business please contact us at RiskSave by pressing the button below.

RiskSave can design Compliant Customer Journey and advise on Suitability and Appropriateness. We can also host Streamlined advice models on our Regulatory Host and Appointed Representative network.

Please contact team@risksave.com to find out more.