A new market structure

In summary, the FSA now proposes a new advice landscape:

• Independent Advice (unbiased and unrestricted advice)
• Restricted Advice, allowing both
  • Single/muti-tied advice and/or
  • A simplified advice process
• Basic Advice
• Non-advised services (including execution only)

Outcome vs Classification

The FSA appears to want to restructure the distribution market place according to how advice is given - not by defining categories of advisers, such as, Independent, Direct Sales, Tied or Multi Tied.

In their June Consultation Paper (CP) the FSA has said that the new market structure proposed in their November 2008 Feedback Statement, remains unchanged.

However, there are some important new definitions:

Advice will be classified as 'independent' or 'restricted'.

Independent advice

The FSA has stated to give 'independent advice' advisers will need to evidence they provide:

"A comprehensive and fair analysis of the relevant market"

and

"Unbiased and unrestricted advice".

The term 'relevant market' may be assumed to be a specific financial market, such as retirement planning or investment planning. It's worth noting that the FSA have not yet explained or listed all 'relevant' markets.

The term 'unbiased' suggests that advisers should not recommend a product which could influence their advice because of any commission automatically payable. The term 'unrestricted' means that adviser must consider the suitability of all packaged and unpackaged products that are suitable for that 'relevant market'. A new handbook definition - "retail investment products" will apply to reflect the wider range of products that would need to be considered within a "relevant market".

Restricted advice

This will include all forms of advice which do not meet the 'independence test'.

This will also apply when addressing a limited range of needs using a 'Simplified Advice Process' or where customers needs are met through a limited range of products.

To provide this service, the FSA will require advisers to declare the limitation of advice (both orally and in writing) in advance of any recommendation. The term 'simplified advice processes' replaces 'Advised Guided Sales'.