FCA to make advisers choose between independent and restricted service

Financial advisers must choose either to be independent or restricted and can no longer switch between the two types of service, the Financial Conduct Authority (FCA) has said.

In its latest Markets in Financial Instruments Directives II (MiFID II) policy statement the regulator said it was “required” to implement the independence measure because it was a MiFID II “delegated regulation”.

“Delegated regulations” are EU-wide rules that are directly applicable, which means they can take effect in the UK without the need for changes to domestic laws and regulations.

Firms will still be able to provide both independent and restricted advice but the FCA said individual advisers cannot change between the two statuses. This is to avoid potential consumer confusion about the type of advice they are receiving.

Currently, advisers are able to switch between giving independent and restricted advice provided it is made clear to the client the nature of the advice they are receiving and the advisers “do not hold themselves out as independent for their advice overall”.

The FCA said: “We recognise that the MiFID II requirement preventing an adviser providing both independent and restricted advice is likely to be an issue for firms who give both types of advice and a particular difficulty for firms with only one adviser. However, since this requirement is stipulated in the MiFID II delegated regulation, we are required to implement it.”

It is not clear how Brexit will affect the changes but the regulator is carrying on it with its “business as usual” approach ahead of the EU divorce. FCA chief executive Andrew Bailey has previously said Brexit will not lead to a “bonfire of regulation”.

Smaller firms concerned

The FCA said it had received “concerned” comments from the majority of respondents on this matter, arguing this ruling would prevent smaller firms from offering a range of services to best meet the needs of their clients.

However, the financial watchdog said it expects the MiFID II rule to allow some independent firms to “more often” narrow the scope of their advice in order to provide more specific or more specialist advice, with the caveat this is made clear to consumers.

The FCA does not expect any significant implications as a result of any changes to the independence rule, it said.

Non-MiFID II business not affected

With regards to non-MiFID II business, firms providing advice in this area will not have to distinguish between a restricted and independent service when recommending products.

Neither will they have to avoid giving “undue prominence” to their independent advice services over non-independent advice services in client communications with regards to non-MiFID business.

Separately, in its MiFID II policy statement, the FCA confirmed its phone recording and note-taking rules. It provided guidance for advisers and set out what it would expect advisers to do to meet its incoming ‘at least analogous rule’.

MiFID II legislation is set to come into effect on 3 January 2018.

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