ADVISER KNOWHOW EPISODE 48 5 NOVEMBER 2013 HOW TO BE INDEPENDENT ADVISER KNOWHOW THE WEEKLY TV PROGRAMME FOR ADVISERS BY ADVISERS HOW TO BE INDEPENDENT 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. KEY POINTS 1 Why be independent? 2 Making a robust independent advice process 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 WHY BE INDEPENDENT? ¬¬ Is it integral to the firms’ ethos? 2 MAKING A ROBUST INDEPENDENT ADVICE PROCESS ¬¬ Do clients expect it from the firm? Did they seek the firm for its independence originally? ¬¬ Improve systems and controls to make sure every product is being considered ¬¬ Do the firms’ stakeholders or partnerships hinge on the principle of independence? ¬¬ 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 Plc When 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 Planning We 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 Heckingbottom We 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 Watts We’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 Adviser How important was independence to your firm and did you consider binning the status at all? Leigh Tarleton, managing director, LS Wealth Management There was never a consideration, in the run up to RDR, we had regular discussions with our coshareholders 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 “ 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 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 at citywire.co.uk/adviserknowhow or bnymellonam.co.uk adviserknowhow or you can find the link in addyourviews@adviserknowhow on Twitter, thank you for tuning in, see you next week. HOW TO BE INDEPENDENT ADVISER KNOWHOW EPISODE 48 5 NOVEMBER 2013 HOW TO BE INDEPENDENT ADVISER KNOWHOW A PROGRAMME FOR ADVISERS BY ADVISERS 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. Get involved and add your views on twitter: @Adviserknowhow ADVISER KNOWHOW EPISODE 48 5 NOVEMBER 2013 HOW TO BE INDEPENDENT ABOUT BNY MELLON BNY Mellon is a leading investment management and investment services company, with US$1.5 trillion assets under management and more than 47,000 employees worldwide*. The BNY Mellon asset management model encompasses the investment skills of world class specialist asset managers, including those from Insight, Newton, Standish, The Boston Company Asset Management and Walter Scott ensuring our clients benefit from market leading experts in every asset class. The multi-boutique structure encourages an entrepreneurial, focused approach to investment, ensuring our asset managers are ahead of market trends and at the forefront of investment management. Clear, independent thinking from some of the world’s sharpest investment minds Contact BNY Mellon: tel: 0500 66 00 00 email: [email protected] web: www.bnymellonam.co.uk Important Information TRANSCRIPT Past performance is not a guide to future performance The value of investments and the income from can fall as well as rise so you may get back less than you originally invested For Professional Clients only. This is not intended as investment advice. Any views and opinions contained in this document 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 document 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. Unless otherwise noted, all references to total assets under management (AUM) (which are approximate), provided by The Bank of New York Mellon Corporation, are as of 30 June 2013*. AUM for The Boston Company Asset Management, EACM Advisors, Mellon Capital Management Corporation and Standish Mellon Asset Management Company LLC includes assets managed by those individual firms’ officers as associated persons, dual officers or employees of The Dreyfus Corporation. In addition, AUM / OUM for the following firms may include assets managed by them as non-discretionary investment manager for, or by the individual firms’ officers as dual officers or employees of, The Bank of New York Mellon: The Boston Company Asset Management, LLC, The Dreyfus Corporation and its BNY Mellon Cash Investment Strategies division, Mellon Capital Management Corporation, Newton Capital Management Limited (part of The Newton Group), Standish Mellon Asset Management Company LLC, and CentreSquare. AUM includes BNY Mellon Wealth Management, Ankura Capital and external data. This document should not be published in hard copy, electronic form, via the web or in any other medium accessible to the public, unless authorised by BNY Mellon Asset Management International Limited to do so. To help us continually improve our service and in the interest of security, we may monitor and/or record your telephone calls with us. This document is issued in the UK and in mainland Europe (excluding Germany) by BNY Mellon Asset Management International Limited, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorised and regulated by the Financial Conduct Authority. BNYMAMI and any other BNY Mellon entity mentioned are all ultimately owned by The Bank of New York Mellon Corporation. VIDEO Past performance is not a guide to future performance The value of investments and the income from can fall as well as rise so you may get back less than you originally invested For 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). *As at June 30, 2013