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Regulation and Guidance

Financial services regulation for advice is continually changing and evolving in an aim to enhance outcomes for consumers. The Retail Distribution Review implemented on 31st December 2012 was regarded as a significant change to the world of financial advice. Advisers providing investment advice now need to have reached an industry benchmark qualification of QCF level 4 and have had to move to a fee-based remuneration model. This review intends to introduce a higher level of adviser professionalism and more transparency and quality of advice for consumers. There are further regulatory changes planned for the future and these changes are likely to continue for the protection and benefit to consumers.

A financial adviser must currently be authorised by the Financial Conduct Authority (FCA) to give any form of advice. This involves being accredited and licensed to give advice to customers and may involve levels of qualification to give advice in specific areas.

An adviser must disclose their regulated status in their first meeting with a new customer and explain their capacity as a financial adviser and the type of advice they offer. They must also provide customers with a summary of how they will charge for their services.

In order to provide advice, an adviser must have a comprehensive understanding of their customer’s financial health and financial objectives. In order for an adviser to understand this, they must ask their customer a series of financial questions relating to assets, liabilities, income and expenditure as well as understanding any current and future financial aims and objectives. Without all or even some of this information, a financial adviser will not be able to provide specific, relevant and bespoke advice.

There may be some information that is simply not known or the customer will need to find out at a later time, but the more information they can provide for the financial adviser, the more relevant the advice will be.

It may be that customers feel uncomfortable about disclosing such a large amount of information; however financial advisers must keep this information confidential as they are subject to strict data protection laws.

When a financial adviser actually provides advice, they must produce a report which summarises the customer’s financial position and their financial objectives, highlights any requirements that need to be addressed and then provides adequate solutions to fulfil these requirements. It is then up to the customer whether they follow this advice or not.

This whole financial advice process is highly regulated and it has become very difficult for advisers to provide inappropriate advice due to the governance of the FCA. Any financial adviser not adhering to the FCA guidelines can be severely fined and lose their licence to provide advice in the future.

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