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Warning over ‘misleading’ terms to describe financial advice

Joanna Faith
Written By:
Joanna Faith
Posted:
Updated:
05/12/2014

Consumers could suffer unless the regulator cracks down on ‘misleading’ terms used by some financial advice firms to describe their services, a leading adviser has warned.

As part of the Retail Distribution Review (RDR) which came into force in January last year, the Financial Conduct Authority (FCA) introduced new labels to make clear the scope of advice an adviser can offer to consumers.

Independent advisers can recommend products from the whole of market, while restricted advisers are tied to a select list of products or specialise in one area of advice.

< What is the Retail Distribution Review?>

However, Chris Smallwood, the chief executive of national IFA 2plan, said the FCA must move to wipe out ‘misleading’ terms such as ‘restricted universal’ or ‘restricted whole of market’.

The FCA has previously suggested firms should be careful which terms they use. “We do not have a ‘whole of market restricted’ for consumers,” FCA technical specialist Rory Percival said in November last year. “We have independent or restricted.”

However, in January, the FCA said some financial advice firms were still confused about the requirements governing independent and restricted models.

Abuse

Smallwood said the FCA should act swiftly to stop what he sees as an abuse of the ‘independent’ label.

“The two terms – ‘independent’ and ‘restricted’ – demonstrate a clear distinction between independent advisers that can offer the full range of financial products and providers available, and restricted advisers that focus on a limited selection of products and/or providers,” he said.

“There is no middle ground, and the FCA must show itself to be strong by cracking down on those restricted firms that are clouding the waters by using terms not approved by the regulator to suggest that they offer both restrictive and independent advice.

“If it has the interests of the consumer and the reputation of the financial advice industry, then it must move swiftly to issue an outright ban on misleading terms.”