Firms warned over 'lay advocate' roles for unqualified IFAs

Lay advocate role

I can understand why firms would want to offer this role and why some existing IFAs would be interested. However, it would pose massive regulatory and compliance challenges. How would firms ensure that individuals in these roles never stepped over the 'advice line', particularly where they are continuing to work with existing clients? If the ex-IFA is genuinely only factfinding and managing the relationship, I can see how this might work, but the risks associated with these roles will not really come to light until the first round of client complaints.

Posted by: Martin Bamford

Add a clause

The firm is exposed to the risk of a claim by a client against the 'old' adviser. Clients may not understand the concept of de-authorisation and 'old' advisers will not necessarily be too forthcoming in telling clients that they cannot give any advice. There is a moral hazard here too in that the ex- adviser now knows he personally is exempt from FSA/FOS/FSCS jusrisdiction, and need not be as cautious with his 'suggestions' than he may have been in the past. The firm might be able to protect itself by adding a clause to its Client Agreement to the effect that it accepts responsibility for advice given only be certain named individuals.

Posted by: Green Eyed Monster

Lay advocate

Martin, as I explained to the author of the article when we originally discussed this subject, this type of role is not something that we would entertain for any outgoing IFA who came across our door because clearly there is a huge potential risk to our business. How it is working in practice at the moment is that an authorised adviser is present during the initial meeting to clearly set out the roles of each individual so that the client understands who is doing what. The non authorised individual assists with fact finding and administrative tasks nothing more than that. The plus point is that the presence of that adviser does help to secure the relationship going forward. I agree that any IFA who allows a previously authorised individual lose on clients without very tight supervision is mad... which is exactly why we won't be doing that!

Posted by: James Marchant

Like we don't have enough to worry about...

Comments like these show up in high definition how strangled IFA companies feel by regulation. We daren't have a decent idea that (God forbid) leads to further profit without inventing compliance problems before even testing it out! We are businesses you know. And clients aren't always little lambs to the slaughter.

Posted by: Stuart

realtionship manager

Why call this role something as abstract as 'lay advocate' - surely 'relationship manager' or something like that is rather more understandable. Lots and lots of ex advisers will do this - I have heard of several people who intend to work like this. Wouldn't it be possible to fully explain to a client, face to face post RDR that the old adviser, IN THE PRESENCE OF THE NEW ADVISER, is no longer permitted to give advice, will not do so, and that nothing that is said or done by that person constitutes advice. This should be set out in writing, explained fully to the client who will be asked to sign and date the declaration. Provided that the ex adviser is careful and diligent in making sure they operate only within the remit of their new role, and that advice is never given verbally or in writing, this can work fine. If some members of the industry see it as a way of 'getting round RDR' their firms and they can expect a monster fine from the FSA which is fair enough in my view.

Posted by: stick a fork in me I'm done

Too much agonising.

As ever the topic is being done to death. Actually there is a lot of truth in the basics and I can confirm that I know of several IFAS who will not be taking exams and who are pinning their hopes on some such arrangement as outlined. To make matters even murkier they are presuming that they will be able to give ‘non-investment’ advice and still take commission (term assurance etc.). The solution is actually quite plain. Those that are de-authorised have no choice or say in the matter. If their clients require on-going advice there is no option but to go to an authorised adviser, be they restricted or independent and both will have to have attained level four and charge fees. Any ducking or weaving round this issue will I feel be heavily stamped on by the regulator – after all they have made the bed and they will be anxious to see that no one circumvents their machinations. Obvious really. When push comes to shove only the most foolish of firms would entertain such an arrangement.

Posted by: Harry Katz

Quite right Harry

That is my view re writing obvious warnings for column inches. Any old IFA needs to understand they are effectively there to smoothly hand over their clients to a new firm fit for purpose in the new world. I was looking to work with an old school fella with a great client bank but, after a couple of meetings, I envisaged having to sit at the side of him whilst I completely picked to pieces his well established model as completely outdated and totally biased with the sole aim of sucking as much up front commission as possible from his clients, engineering the opportunity to suck more out of them in the future. All in front of the client. I decided against it. But it could work.

Posted by: Stuart

What about the client?

Shouldn't the discussion also look at the client, what they get out of it, how much it costs them? Regulatory issues aside, what's in it for the client. In the 'relationship manager' above it talks about how this new arrangement is initially disclosed to the client. I am thinking that any client with a half inquisitive mind is going to ask, what is this additional mouth going to cost me to feed. That extra bum on seat isn't actually free, and if it cannot actually give any advice, is there is real benefit apart from the fact that we've gottn to know each other. I think that if the cost of having the 'relationship manager' is spelled out in actual pounds and pence they'll soon decide that they don't need it.

Posted by: Dennis Hall

Ridiculous

Stuart and Dennis obviously don't have any seriously long term clients yet. Most long term clients need a new adviser when their trusted adviser retires. The question for me is whether i can really trust the new adviser. You see, this is not about some childish new exams which a retiring adviser simply doesn't need. I'm retiring in 2012 on account of age after 40 plus years in the industry, the average client has been known well for perhaps 25 years and no new clients have been sought for at least 10 to 15 years. The problem is many retiring advisers don't know whether their clients will get the service they deserve at a fair cost. To just leave clients with fingers crossed with a new adviser isn't enough. I need to gradually introduce them and to help address any fears they have, whilst always making them understand that discrete advice cannot be given. They need to feel comfortable and to be reassured that they are in safe hands, so as to cement the new relationship. Relationship Manager is a reasonable term for a period of perhaps 2 years to ensure the new adviser gets to 'know his client'. Don't tar the retiring adviser with an 'amateur' label. He has almost certainly earned the trust of his client over many many years- something the new adviser must yet achieve. This is a business of trust above all else- much less to do with yet another raft of exams which demonstrate a clear case of age discrimination against retirement age advisers. So lets have some common sense prevailing, not hysteria, because millions of clients out there are depending on it.

Posted by: Ridicuculus

Relationship Manager or Introducer

I can see both sides of the argument. What is the difference however between an introducer/accountant/solicitor/bank staff who has never been an authorised adviser and one who has been? The risk of accidentally giving advice in the latter will be higher and will need to be clearly identified and managed. As someone else said "This should be set out in writing, explained fully to the client who will be asked to sign and date the declaration", better still, I'll bang on as I often do about teh advntages of RECORDING what is actually said. First meeting of old and new adviser with the client recorded and ANY contact between the old adviser and client to be recored so that the new adviser can policy it and ensure advice is NOT given. Everyone is focusing on the issue around former advisers who are unqualified/unauthorised to level 4 accidentally given advice, but what of qualified to level 4 people who are NOT authorised to give advice such as paraplanners? I have seen it implied that some are doing ALL the client contact including presenting and that they have also prepared the reports and reseacrh too and all that has happened is the authorised person has run their eye over the FF, report/sl etc.... As to leaving the innvestemt advice arena and then doing lifecover etc, if it doesn't have any investment content then protecion will still only need level 3 I think (as with mortgages) and with those I think you'll also find it can be just oen person at the firm with level 3 and everyone else working udner their supervision. The RDR is a bit of a mess...

Posted by: Phil Castle

Why?

What is confusing and what is challenging about any of this or indeed financial advice? You guys put yoursleves on some sort of pedestal. I am talking from a position of knowledge, I am Chartered and have taken more exams that the CII can remember, all of which I have to say were straight forward. How you can make a simple topic like resolving a problem domain with easy to understand solutions is beyond me. Legends in your own living rooms!

Posted by: Dexter Fitton