ADVISER KNOWHOW EPISODE 48 5 NOVEMBER 2013 HOW TO BE INDEPENDENT

HOW TO BE INDEPENDENT

ADVISER KNOWHOW THE WEEKLY TV PROGRAMME FOR ADVISERS BY ADVISERS

IFA firms have had to strengthen their systems and controls ahead of the retail distribution review to meet the regulator’s finalised expectations on independent advice. Last summer the regulator confirmed its definition of independent advice to be ‘unbiased and unrestricted, and based on a comprehensive and fair analysis of the relevant market’.

Its ‘whole of market’ clause proved particularly daunting for many smaller firms and sole traders hoping to retain their independent status from 2013, and saw many firms drop independent from their descriptions. Independence is far from extinct post-RDR, as the following video shows how firms have risen to meet the new standards.

1 Why be independent?

2 Making a robust independent advice process

KEY POINTS

ADVISER KNOWHOW EPISODE 48 5 NOVEMBER 2013 HOW TO BE INDEPENDENT

KEY POINTS

KEY POINTS FOR THIS WEEK’S ADVISER KNOWHOW FEATURING AN INTERVIEW WITH LEIGH TARLETON OF LS WEALTH MANAGEMENT.

1 2WHY BE INDEPENDENT?

¬ Is it integral to the firms’ ethos?

¬ Do clients expect it from the firm? Did they seek the firm for its independence originally?

¬ Do the firms’ stakeholders or partnerships hinge on the principle of independence?

MAKING A ROBUST INDEPENDENT ADVICE PROCESS

¬ Improve systems and controls to make sure every product is being considered

¬ Understand the structure and outline risks of all products reviewed

¬ Review all client literature and strengthen fact find

¬ Review any existing panels

¬ Improve access to different research tools

ADVISER KNOWHOW EPISODE 48 5 NOVEMBER 2013 HOW TO BE INDEPENDENT

PROGRAMME TRANSCRIPT

“We widened our panels to make sure that that was the case; we changed our service proposition completely so that clients were fully aware as to what the fees were and how the fees calculated and on what basis they were levied.”

Peter Heckingbottom, investment director, Pearson Jones Plc

Welcome to Advisor KnowHow, this week we’ll be discussing how advice firms can prove their independence to both clients and the FCA. In the summer of last year, the regulator outlined its final guidance on independent and restricted advice. It confirmed that the definition of independence is to be unbiased and unrestricted and based on the comprehensive and fair analysis of the relevant market. From that point on there was a lot of scaremongering about how tough it would be to demonstrate and evidence independence. However, the challenge was confidently taken on by many. Here with me now, to discuss independence is Leigh Tarleton of St Helens based LS Wealth Management, but before we get to Leigh, let’s see what other advisers have got to say about proving their independence.

How important is independence to your firm?

Peter Heckingbottom, investment director, Pearson Jones PlcWhen the RDR first was introduced we imagined that it was going to be absolutely imperative for us to be independent. We’ve always been an independent firm and we’ve always focused on independence as being part of our watchword, our ethos, our credence, if you like, of being an adviser.

Nicola Watts, director, Jane Smith Financial PlanningWe strongly believe in independence providing completely unrestricted advice for our clients. That’s why we think most of our clients came to us because of that independent label that we have.

What systems and controls do you have in place to ensure you’re being independent?

Peter HeckingbottomWe implemented procedures to make sure that we were reviewing all retail investment products last year. We widened our panels to make sure that that was the case; we changed our service proposition completely so that clients were fully aware as to what the fees were and how the fees calculated and on what basis they were levied. We changed everything basically so that it complied with the RDR.

Nicola WattsWe’ve taken and done an exercise in reviewing all of our literature obviously and then the fact finding processes, there’s a lot more questions in there about previous experience, who they’ve dealt with previously. So, have they dealt with independent or tied agents, and also around their feelings on different types in investments, charges and that sort of leads us down a route to where we might be going.

Michelle Abrego, New Model AdviserHow important was independence to your firm and did you consider binning the status at all?

Leigh Tarleton, managing director, LS Wealth ManagementThere was never a consideration, in the run up to RDR, we had regular discussions with our co-shareholders who are a firm of chartered accountants and it was very important for them that we retain the independent badge. Our business has been running for eight and a half years, it would have been a monumental change of direction to our clients had we decided to go down the restricted route.

Following the FCA’s guidance last year, did you revamp any documents, did you do anything to strengthen your system of controls?

Yes, I think the initial client agreement, obviously we had to incorporate the new charging structures that the FCA guidelines had provided and as a result of those changes, we felt that we would incorporate a lot of emphasis around independence within that document. So, it’s made very clear to the client, because obviously from the regulator’s point of view, they want to see what research we’re doing and selection of platforms and wraps, but for the client, it’s a title so, they need to really understand what it’s all about and that initial client agreement

ADVISER KNOWHOW EPISODE 48 5 NOVEMBER 2013 HOW TO BE INDEPENDENT

really does assist them in being able to establish that we are an independent adviser and look at whole of market on their behalf.

How do you explain it to the client, how do you explain the difference between independent financial advice and restricted financial advice?

It’s effectively that we’re working on their behalf, we’re not acting on behalf of any product providers or panels, we have access to whole of market and that gives them a lot of reassurance still.

If the FCA came into your office tomorrow, what would you show to them to prove your independence?Well, certainly we have a centralised paraplanning facility within the Beaufort Group of which we are an AR firm, but we also do some paraplanning fairly simply transactional business within the office and all of our administrative staff also have access to the same research tools that our centralised paraplanning team have and so, that’s obviously one way of demonstrating how we are researching whole of market. Over and above that, the documentation, as I say, the initial client agreement is very clear about independence and how we are acting on behalf of the client and we are researching whole of market, we’re not just being steered down one particular solution time and time again for each client and trying to shoehorn a solution their way.

Thank you very much for coming in.

Thank you.

You can download the cribsheets for this week’s addition atcitywire.co.uk/adviserknowhow orbnymellonam.co.uk adviserknowhow or you can find the link in addyourviews@adviserknowhow on Twitter, thank you for tuning in, see you next week.

“ The initial client agreement is very clear about independence and how we are acting on behalf of the client and we are researching whole of market.” Leigh Tarleton, managing director, LS Wealth Management

ADVISER KNOWHOW EPISODE 48 5 NOVEMBER 2013 HOW TO BE INDEPENDENT

Produced in association with BNY Mellon, Adviser KnowHow is a new groundbreaking programme, created specifically to help you and your business. Every week we speak directly to your peers in the industry to understand how they have addressed some of the key issues that advisers face every day of their working lives.

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ADVISER KNOWHOW A PROGRAMME FOR ADVISERS BY ADVISERS

ADVISER KNOWHOW EPISODE 48 5 NOVEMBER 2013 HOW TO BE INDEPENDENT

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VIDEO Past performance is not a guide to future performanceThe value of investments and the income from can fall as well as rise so you may get back less than you originally investedFor Professional Clients only. This is not intended as investment advice. Any views and opinions contained therein are those of the individual as at the date of issue, are subject to change, do not represent the views of BNY Mellon Asset Management International Limited and should not be taken as investment advice. BNY Mellon Asset Management International Limited (BNYMAMI) and its affiliates are not responsible for any subsequent investment advice given based on the information supplied. This video may not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorised. This video is issued in the UK and in mainland Europe (excluding Germany) by BNYMAMI, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorised and regulated by the Financial Conduct Authority. CP10750-07-02-2014(6M).

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