Independent and restricted advice
Before providing advice, advisers need to inform clients which type of advice they are providing - independent or restricted.
An adviser could offer different types of advice to different types of client. For example, they could offer independent advice to clients with complex needs and restricted advice to others with simpler needs.
Advisers who provide independent advice must be able to advise on the full range of products which may be suitable for their client. They must demonstrate the personal recommendation is "based on a comprehensive and fair analysis of the 'relevant market'" and is "unbiased and unrestricted".
This is defined as "all retail investment products which are capable of meeting the investment needs and objectives of a retail client". So advisers who provide independent advice will need to consider a wider range of investment products than currently required.
The FSA has not provided a definitive list of retail investment products and it will be the responsibility of the adviser to decide. However it is wider than conventional packaged products and includes:
- structured investment products
- investment trusts (ITs)
- exchange-traded funds (ETFs)
- unregulated collective investment schemes (UCIS)
- any other designated investment which offers exposure to underlying financial assets, in a packaged form which modifies that exposure when compared with a direct holding in the financial asset.
This means advisers are free from any restrictions or factors (financial or otherwise) which may affect their decision to recommend a product.
This means that advisers must consider the suitability of all retail investment products which may potentially meet the client's needs. They can still use panels to help review the market and donít have to review it for products that donít meet the client's needs.
There is an exemption for group personal pension business. When advising a client about joining a scheme their employer contributes to, an adviser can describe their advice as independent even if they donít actively analyse the suitability of all other retail investment products.
Restricted advice is defined as advice which is not independent advice or basic advice.
This is where the adviser gives advice on products from a limited number of providers or only considers certain types of products. Advisers giving restricted advice must still ensure product recommendations are suitable and in the customerís best interest.
They also have to satisfy the same professionalism and adviser charging rules as independent advisers.
Before making any recommendations, the adviser has to tell the client that they are providing restricted advice and explain what the restriction is.
This covers advice on simple, low cost products, such as ISAs and stakeholder pensions using pre-scripted questions. Advisers giving basic advice will still have to tell clients they are providing restricted advice. This advice falls outside the adviser charging rules (which means commission may still be paid) and the new professionalism rules will not apply.
Non-advised services are currently out of scope for RDR, however the FSA has said it remains under review. It must be made clear to customers who choose this service that no advice is being given.
Read more about independent and restricted advice by downloading a PDF of the FSA Consultation Paper.
Read more about simplified advice by downloading a PDF of the FSA Final Guidance Paper.
Published May 2012
For professional advisers only