RDR: Stern rules for 'restricted' advisers - UPDATE

'Restricted' advisers must make clear their limitations both in writing and orally using a "specific" script before any advice takes place, the FSA suggests today.

In its RDR Consultation Paper, released this morning, the regulator says restricted advisers - all those who do not meet its criteria for independence - will need to include the term 'restricted advice' in their ID documents.

Additionally, they will have to use a "specific form of words" when explaining their limitations orally, even offering an example script.

However, the proposals remain suggestions only and the FSA adds firms may be allowed to choose how they explain their limitations.

Elsewhere, the paper says adviser charging rules will be required for all firms offering advice - both restricted and independent. It says firms should not be able to hide the costs of their services and must agree, up front, a fee with the consumer.

It also proposes a new definition for ‘retail investment products' to which its independence requirements will apply.

In addition to packaged products, ‘retail investment products' will also now include unregulated collective investment schemes, all investments in investment trusts (not just those in investment trust savings schemes) and structured investment products.

Other investments which offer exposure to underlying financial assets, but in a packaged form which modifies that exposure compared with a direct holding in the financial asset, also come under the definition.

The UK financial advice arena will be split between independent advice and restricted advice, the FSA suggests today.

It says all firms providing advice on retail investment products will be required to disclose in writing to each client, before providing the service, whether they will provide ‘independent advice' or ‘restricted advice'.

It says for restricted advisers, the term ‘restricted advice' must appear on its initial disclosure information.

It offers an example script: "We offer restricted or "We offer...However, we are not mandating a precise advice, which means that we offer advice on [Firm X] products only".

In addition, it suggests firms offering restricted advice will be required to provide oral disclosure using a specific form of words that will include the name of the firm they work for and the range of products they advise on.

Independent advisers MUST offer services based on a "comprehensive and fair analysis of the relevant market", adding it must also be "unbiased and unrestricted". Firms that do not meet this criteria can not call themselves independent.

"This is a call to action for the industry - all investment advisers need to consider how they will respond and implement these wide-ranging and challenging improvements by the 2012 deadline," Jon Pain, FSA managing director of retail markets, says.

The FSA is inviting stakeholders to comment on its detailed rules for implementing the RDR - the closing date for responses is 30 October 2009.