The approach of ICAEW's Code of Ethics (The Code) from 1 January 2013, following the FCA’s Retail Distribution Review (RDR).
The core principle underlying ICAEW’s code requirements on investment business referrals is that our members have to be objective and give objective advice. From that it follows that they can only make referrals to advisers who are in a position to be able to give objective advice themselves, otherwise sub-contracting would circumvent the code. ICAEW’s view is that IFAs would currently be likely to be able to give such advice, single-tied agents would not, but multi-tied agents have to be assessed on a case by case basis, by the member with the potential referral. The assessment to be made would be whether the multi-tied firm places business with the product providers who account for a large majority of the relevant market, or offer the sector of the market which is most suitable for the client’s needs. (Code 241.26)
The changes to Section 241 of our code of ethics were approved by the ICAEW Council on 3 October 2012. We have retained the existing underlying approach, but changed the terminology to reflect the RDR structure of independent and restricted advice.
Advisers who fall within the FCA's new definition of independent would, as before, be considered to be likely to be able to offer objective advice. Independent is now defined to include not only advisers who provide independent advice across all markets and all products, but also advisers who provide independent advice across all products in the relevant market.
Advisers offering restricted advice (which is everyone that does not fall within the definition of independent) would as before, need to demonstrate their independence to referring members. They then need to be assessed by the member with the potential referral, to ascertain if they place business with the product providers that cover 'a large majority of the relevant market, or offer the sector of the market which is most suitable for the client's needs'.
Clients needs vary on a case by case basis and the client-facing member is in the best position to make the assessment of suitability. The guidance is drafted to reflect this. If a member refers work to an adviser that meets the FCA definition of independent, no further assessment of suitability will generally be necessary. If it is proposed to refer to a restricted adviser, the referring member will need to ensure that the client's needs would be addressed appropriately, including making an assessment that the restricted adviser has demonstrated that they are able to cover a large majority of the products and providers available in the market that is relevant to the client's needs.
Some frequently asked questions have been prepared in conjunction with the Financial Services Faculty.
Other relevant FSA guidance includes:
Further advice can be obtained from the Ethics Advisory Service on +44 (0) 1908 248 250. You may also find this RDR webinar helpful.
The position for DPB licensed firms remains unchanged. See DPB regulation 4.19.