More advisers are de-authorising but continuing to see clients. So, is the future set to be unregulated?
In June, Dave Chaundy gave up his Financial Services Authority (FSA) permissions and resigned from the Whitechurch Network. Concerned clients called, asking whether he would be retiring.
But he wasn’t. Chaundy, sole adviser at The Grosvenor Consultancy, is one of a number of IFAs who are taking an unusual route to advising clients.
The process has been surprisingly simple, he said.
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“I’ve established a reasonable practice and haven’t done any business with a new client for three or four years. Most of the work I do for them doesn’t involve any transactional advice at all.
“I discovered I didn’t really need to be FSA authorised and could continue to give 95% of the service I already give: financial or lifestyle planning. I then have a fully authorised and regulated firm of IFAs that I can introduce if transactional advice is needed.”
According to Chaundy, he hasn’t lost a single client.
The benefits of de-authorising seem simple. As well as removing the FSA’s fees, Chaundy is no longer liable for levies from the Financial Ombudsman Service or the Financial Services Compensation Scheme.
Professional indemnity insurance is not compulsory, and neither are the network fees that previously made up 15% of his outgoings.
Even including the VAT that applies to unregulated advice, Chaundy estimates he has saved around £20,000 per year with no detriment to his clients. Not bad for a one-man band.
The FSA is surprisingly clear on the subject: regulated advice, it says, “must relate to a particular investment or investments – generic or general advice is not covered.”
So Chaundy can advise “on the merits of investing in Japan rather than Europe, or the merits of investing in investment trusts as opposed to unit trusts,” without being regulated at all.
Problems arise when products are involved. Chaundy is frank about his position. There is little chance to attract new clients without being able to recommend the suite of products required at the beginning of a relationship.
Divide and conquer
Mike Stafford, a financial planner at Stafford & Co, thinks he has come up with a better solution: split his business in two. A regulated arm deals primarily with trust work, while the unregulated branch provides holistic financial planning.
“Because financial planning isn’t regulated, there is a danger the activities could be construed as regulated,” he explained. “And because the non-regulated side has no products involved it is liable for VAT.
“By splitting it into two, our regulated business will always be non VAT-able so we won’t have issues with HMRC.”
There is little confusion over which clients fall into which business, he argued.
“Discussing a product with a client is regulated advice. Saving or planning for the future isn’t. Anything that speaks about plans, objectives, goals or ambitions is not regulated.
“People are saying a guy in the pub could give you financial planning advice. Strictly speaking it is correct, but nobody would.”
Losing FSA approval makes little difference to clients. Stafford is a member of the Institute of Financial Planning, which provides the reassurance they need.
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Based on ONS data