Will your financial adviser meet the new standards from 2012?
You probably won’t have heard of it, but the financial services business is undergoing a fundamental change at the moment. If you use a financial adviser you need to be aware of this because this will affect whether they will be able to trade from the end of 2012.
Essentially, the Financial Services Authority is making some sweeping (and overdue) changes to the way financial advisers are regulated and controlled. This will raise standards for consumers in a number of areas. This is called the Retail Distribution Review, if you’re interested to check it out.
Qualifications
At the moment, the basic qualifications to be a financial adviser are laughably low. The current minimum required is set at QCA level 3, which is roughly equivalent to GCSE level. I am sure that if you use an adviser you were not aware of that! The new requirement will raise the minimum standard to QCA level 4, which is diploma level. This will be a major change for most of the financial services industry, and means that most financial advisers will need to gain new qualifications. We fully support this change because we believe that financial advisers should be highly qualified to give advice. Many financial advisers have not undertaken any serious training or qualifications for years, citing “experience” as their justification. However, we think that they should undergo a rigorous regime of regular training, just like any other professional. After all, would you trust a doctor who told you that the last qualification he took was 25 years ago?
You should ask your adviser if he plans to study the new curriculum, and if not what will be his plans will be for you. If he is not suitably qualified from 2013, he will be unable to trade.
Dan Woodruff is a Certified Financial Planner, which is an advanced level qualification much higher than is required by the current or proposed rules (QCA Level 6, equivalent to degree level). Dan Woodruff also holds a degree in Law (LLB), as well as other advanced financial services and legal qualifications.
Remuneration
A key change to the way financial advisers work is that they will be forced to stop using commission to be paid, and instead agree a fee for their work with their clients. For most advisers, this will be a drastic change to their business model. We fully support this change because we think it will go a long way to remove bias from financial services advice. At the moment, most financial advisers get paid if they can sell you a product. There is no incentive to provide you with the most appropriate advice, or to follow this up with regular reviews. This is a bit like asking a mechanic to check over your car but asking him to agree to only be paid if he can find something wrong with your car;. In this scenario, do you think he would find a problem?
We already meet the new requirements. We work on a fee basis with our clients, agreeing fixed fees for transactional work like our Financial Advice service, or regular payments for ongoing services and advice, like our Portfolio Management service.
Scope of advice
Financial advisers will also be forced to choose whether they offer independent advice, or restricted advice. We think that many financial advisers will choose to offer restricted advice. You should check with your adviser to ensure that he continues to offer independent financial advice from the end of 2012.
We will continue as now, to work on behalf of our clients, offering truly unbias, independent advice.
Professional standards
The rule changes will force advisers to adopt ethical and behavioural standards through the creation of a Professional Standards Board. We already adopt this approach through our membership of the Institute of Financial Planning, which is the leading professional and ethical body for financial planning practitioners. The IFP certifies, upholds and monitors the professional standards of Financial Planning Practitioners to protect the interests of members of the public, thus ensuring that they receive proper Financial Planning advice from its members.
Tags: independent financial adviser, rdr, Regulation, retail distribution review
