Non-regulated Advice: Plant trees, under whose shade you do not expect to sit.

There were two seeds I planted over fifteen years ago that - only now have the trees grown and blossomed - and changed the advice industry for good, forever.

First, I introduced the first wrap platform to the UK in 2003. There are many others who might claim this. Transact. Hargreaves. Alliance Trust. Scottish Friendly. But, when you understand that a wrap platform is all tax wrappers, wrapped around a whole of market investment proposition, on a single hardware platform. Then you understand that the Abbey Wrap was first. After my marketing campaign, as head of wrap, awareness went up amongst advisers from 1 in 5 to 4 in 5. Those others succeeded on our shirt tails. This disrupted the life and pension industry.

Then in 2005, I introduced the first retail multi-asset funds. Tactica, managed by Goldman Sachs. All fund houses down Cannon Street had to follow suit. This disrupted the mutual fund industry. Later I introduced passive retail multi-asset, as I headed up investments at HSBC.

Today 8 out of 10 investors prefer passive retail multi asset funds on (wrap) platforms.

These solutions are suitable for the 95% of the general population disintermediated on account of their limited wealth, and some of the 5% who are not.

There remains a market for advised execution for higher net worth. This is the market the intermediaries serve today.

The availability of self-execution channels for the mass market basically knocks all those intermediated in-house or actively managed solutions into a hat when you review performance versus market, after intermediation charges. Saving the client 25% of their life savings every 20 years.

So, then all you need are decent D2C platforms.

See: https://www.dhirubhai.net/groups/8175236/

And, strip out intermediation, from financial planning.

See: https://www.dhirubhai.net/groups/12282004/

So, I set these two groups up. And, let’s face it. It’s the planning that adds value for the client, rather than the intermediation.

Here. There’s no need to regulate the financial planner, as they are now agent for the client rather than the product provider. A wall exists between advice and product.

Huge cost savings can be passed on to clients, achieved by stripping out regulation from planning, which in turn eliminates the advice gap.

The future is bright …

The future is Non-intermediating Financial Planners and D2C Platforms.

But there are three sticking points in the mind of many:

1. Why not be regulated anyway (otherwise how else to evidence expertise and ethics)?

2. Has the FCA explicitly approved 'non-sales' advice as being a model beyond regulation - ultimately a financial plan still recommends big decisions even if the clients 'execute' for themselves.

3. I believe there are already regulated IFAs who have an internal 'wall' between financial planning (set fee) and execution - clients welcome to walk away with the plan after stage 1. Isn't that the most comprehensive approach that offers a regulated, one-stop shop for clients who need it?

Here's my response:

1.  Expertise/ Ethics:

Get qualified to the hilt, join a trade body or professional association, keep taking those exams and do voluntary work. I volunteered with the collaborating campaigning communities to restore trust and confidence to the financial services industry. This is many times better than any Statement of Professional Standing (as in hours counted). An SPS can only be issued by an FCA appointed accredited body, such as the CII, and confirms that an adviser: Has adhered to a code of ethical standards. Holds the required qualifications for the activities they undertake. Has completed appropriate CPD (far fewer hours than as a volunteer) and complied with APER (Statements of Principle and Code of Practice for Approved Persons). From my experience, traditionally CPD is awarded to those who attend product provider show cases.

What I did was I founded and led the Market Integrity Team of the Transparency Taskforce that ran a review of codes of conduct across the financial services industry and presented recommendations to parliamentarians and governing bodies in the form of a white paper. That’s what I did. Basically, if the professional bodies improved codes, there would be no need for regulation to evidence expertise and ethics. https://www.transparencytaskforce.org/market-integrity-team/

2.  The FCA approve ‘advised’ sales and ‘non-advised’ sales.

These above are regulated activities. They do not approve ‘general or generic advice’, or as I call it ‘non-sales’ advice.

PERG 8.26 The investment must be a particular investment

PERG 8.26.1G06/04/2016

RP

For the purposes of article 53(1), advice must relate to a particular investment – generic or general advice is not covered. Generic or general advice may, however, be a financial promotion (see PERG 8.4).

PERG 8.26.2G06/04/2016

RP

Generic advice will not be caught by article 53(1). Examples of generic advice may include:

(1) financial planning.

(2) advice on the merits of investing in Japan rather than Europe.

(3) advice on the merits of investing in investment trusts as opposed to unit trusts or unit-linked insurance; and

(4) advice on the merits of investing offshore, or in fixed income rather than floating rate bonds.

Financial planning must avoid personal recommending big decisions relating to specific investments, like buying, holding or selling. Simply present the factual information, much in the same way you would when answering a CII exam question. Refrain from giving your opinion. Present pros and cons. Explain jargon. Educate them.

PERG 8.30B Personal recommendations

PERG 8.30B.1G23/02/2018

This section explains what personal recommendation means for the purpose of the definition of the regulated activity of advising on investments (except P2P agreements). PERG 8.24.1AG explains when this is relevant.

3.  The Fee Only Financial Adviser (Fiduciary)

Yes. Regulated advice models exist that place a wall between advice and intermediation, such as that described. However, in practice some firms turn away clients at the pre-meeting as being not a good match, or caveat exit.

Here’s a case from last month, after I spent some time trying to find a firm to look at a DB transfer for my client. Will do the transfer advice in two stages for ￡7,500 +VAT. Only proceed to Stage 2 (￡5k) if transfer looks viable in stage 1. Investment proposition + wrapper + ongoing advice for 96bps. If want to exit can do so after 12 months without penalty.

Also, the same firm can’t give generic advice at stage 1 then regulated advice at stage 2. Both stages 1 and 2 are captured as regulated.

When financial planning, my experience is that less than one in twenty clients need to be referred to a regulated financial intermediary. I can deliver non-regulated financial planning for a fraction of the cost of financial intermediation. In the vast majority of cases, the one-stop shop model is simply not worth it, for me or my client.

For further details, please visit www.academyoflifeplanning.com.