Regulation and the non-regulated adviser: How they operate and how to become one

The Financial Conduct Authority refer to advice-sellers and non-advice sellers, as they focus on financial intermediation and product providers. There’s a new breed of adviser emerging, as financial capability levels rise through information sharing, the dangers of absence of walls between advice and product become more apparent and greater regulation applies cost pressures on the advice industry. This new breed of adviser is the non-sales adviser. Here I share details on the non-sales adviser, how they operate and how to be one in an overly regulated environment.

I have spent the last decade studying the trusted adviser model. I have learnt that the greatest value the adviser can add is in the advice they give and not the product they sell. As a result, I no longer sell products to my clients. We at the Academy of Life Planning have chosen to be non-regulated advisers, that is we are “non-sales advisers”.

What I mean by non-sales is, we sell financial plans – not particular products or providers.

Here at the Academy, we place a wall between advice and product.

There has been a continuous drip, drip, drip of untrustworthy behaviour in the financial services industry over a very long period of time.

The Transparency Taskforce say:

“… for many reasons and in many ways the Sector’s reputation and therefore trustworthiness has been damaged, terribly. Numerous scandals and incidents of malpractice – perpetrated by rogue individuals (think Maxwell, Madoff et al); or dodgy behaviour in particular organisations (think Equitable Life, Wells Fargo etc.); or entire parts of the market (think endowment mortgages, transfers out of Defined Benefit pension schemes, PPI and so on); and even complete market collapses that have led to a decade of austerity for innocent people (think the last Global Financial Crisis); have all contributed to the erosion of confidence in Financial Services.”

The common theme in this erosion of confidence is sales. Remove sales, problem solved.

If all a firm does is advise, they are not required to be regulated. Here we explain the difference.

If you would like to know more about regulation and non-sales advice either for personal exploration or as an introduction to becoming a Non-intermediating Financial Planning practitioner, please contact us for details.

Tell me more about non-sales advice …

We do non-sales advice at the Academy mainly because, this way, your best interests are always served, without muddying our relationship with conflicting interests such as commissions (or their synonym – percentage-based or contingent adviser charges deducted from products).

Have you ever thought to question why an adviser should be paid according to the amount of product they sell, rather than the amount of work they do?

Some might argue, that the wealthier the client the more work needs to be done and the greater the risk to the firm. And, that many firm expenses are variable according to assets under management rather than clients. I would argue that it takes 10 hours to deliver a financial plan under the advised sale route, regardless of how wealthy the client. And, simply because firm suppliers charge by assets, doesn’t make it right.

We are fees-based, non-sales advisers. That is, we charge a fixed fee based on the work we do. This way we offer our clients an assured fiduciary relationship. The relationship wherein we have an obligation to act for your benefit.

We do this by delivering generic advice and financial education without our interests conflicting with those of our clients.  I call this advice, ‘non-sales advice’.

Our ‘non-sales advice’ service offering is like an advised sale process in many respects. Only the financial intermediation is missing. Our method is packaged into a four-step process called the G.A.M.E. plan and includes:

  • Goal setting.
  • Action & project planning.
  • Means analysis & lifetime cashflow forecasting.
  • Execution through personal & business coaching.

The GAME plan is therefore simply a goals-based financial planning system.

What’s the difference? Firms can offer either sales or non-sales advice.

The term ‘sales advice’ relates to the adviser giving you advice about a service or product you hold or they’re selling. I call this style of service, financial intermediation. The sales adviser is an agent of the provider(s) of the products they sell. The client conversation is product-oriented, and transaction centred.

In sales advice, incentives are often in place relating to if, or how much of, a product is sold. Interests between adviser and client are therefore conflicted. A transaction in the adviser’s interest can be made and dressed up as suitable, in the absence of any obligation to act in the client’s interest.

For example, sales advisers may be recommending products with an ongoing advice requirement, potentially instead of more suitable options that do not have ongoing fees.

Characteristics of sales advice include the adviser:

  • explaining why the particular product or provider you hold, or they are selling, would meet your demands and needs; and
  • giving a recommendation of a course of action relating to that particular product or provider you hold, or they are selling, tailored to your needs.

In short, as long as the sales adviser can evidence that the product they recommend would meet your demand or need, it matters little that more suitable options exist on which they wouldn’t be paid.

What do sales advisers avoid?

Fiduciary responsibilities. It is extremely rare for a sales adviser to undertake to act in the client’s interest.

In non-sales advice, the adviser does not make any personal recommendation relating to a particular product or provider and leaves you to decide how you wish to proceed.

For example, the non-sales adviser provides financial planning followed by generic information, which may include a recommendation that you should buy investments (without mentioning a specific product or provider). That recommendation is unrelated to the sale of a contract. There are no product agencies in place and the conversation is very people focused. Conflicts of interest are avoided. Fiduciary responsibilities are maintained. This is non-sales advice.

Characteristics of non-sales advice include the adviser:

  • setting personal goals – establishing your demands and needs.
  • giving you information and generic advice about the particular products or providers you hold or are available to you via sales advisers or directly.
  • giving a recommendation of a course of action relating to your finances (without mentioning a particular product or provider), tailored to your demands and needs.

What should non-sales advisers avoid?

The adviser requires specific permission from the Financial Conduct Authority (FCA) if they want to give sales advice to you, i.e., if they are the FCA registered and regulated sales adviser/ intermediary. If the firm is set up to only give non-sales advice, they need to be careful not to stray into sales advice territory.

If the firm can only provide non-sales advice, such as is the case at the Academy, they must have sufficient controls to prevent advice staff trying to persuade customers to take out contracts and giving sales advice.

In the absence of regulation, non-sales advisers also need other ways of evidencing expertise, experience and ethics to their clientele.

People giving non-sales advice need to avoid answering questions in a way that could inadvertently give sales advice. Answering questions such as ‘what do you think?’, or ‘which one is best?’ when relating to particular products or providers could involve making a personal recommendation and therefore become sales advice.

There is a slight glitch in the landscape. Not all sellers are regulated. Sales advisers are in general registered with and regulated by the FCA, unless the particular products and providers they sell are unregulated. Our recommendation for retail investors is to best avoid sales advisers of unregulated products and providers, as therein lies unacceptably high levels of risks and potential scams, as you can see from the work of the Transparency Taskforce.

When asking a non-sales adviser for their opinion on a particular product or provider they will give information and generic advice about it. Facts not opinions. They will also share public recommendations. The non-sales adviser can’t make personal recommendations about a particular product or provider. That is, they can’t present it as suitable for you. They can, however, share public recommendations.

At the Academy, we do not make any personal recommendation of a particular product or provider. We leave it to the customer to decide.

Our expectation is that our clients can make well-informed, self-directed investment decisions based on sound financial education, supported by our information, generic advice and the sharing of public recommendations. In this respect, you could say we are more teachers and coaches, than advisers.

For example, many of our clients choose to self-invest in a broadly composed portfolio of stocks, with the absence of futile stock-picking effort (i.e., choose passive funds), because of empirical evidence of public recommendations we share supporting this approach.

Such as …

“It is exceedingly difficult, even for a professional investor, to beat the market by trying to predict stock-price movements in the short term. Therefore, it is much better to invest in a broadly composed portfolio of stocks instead of engaging in a futile stock-picking effort.” – American economist Eugene Fama.

As Andy Hart said this week in Money Marketing:

“Quite frankly, managing the assets is easy. Investment management is largely a solved problem, only complicated by our ever-present desire to be seen as clever and sophisticated. When all’s said and done, investment management can be summed up in a sentence: own a globally diversified portfolio of equities and bonds, ideally more equities.”

In summary,

 Client ProsClient ConsAdviser ProsAdviser Cons
Sales AdviceThe advice is regulated, offering some form of protection.Interests conflict, and your best interests are not assured.Established marketplace, with which clients are familiar.Negative cost and market participation drivers.
Non-sales AdviceInterests are aligned, and your best interests are assured.The advice is un-regulated, meaning you must check for yourself.Positive cost and market participation drivers.Niche marketplace, with which clients are unfamiliar.

The Financial Conduct Authority (GCA) is bound by the Financial Services and Markets Act 2000 (FSMA) to regulate certain financial activities. A firm would probably need to be authorised by the FCA if it was a financial services firm carrying on regulated activities, or if it was a firm offering loans, car financing deals or other consumer credit. The Academy does not carry out such activities, nor do we offer such services.

Firms would require FCA permission to carry out activities specified by the Regulated Activities Order 2001. We at the Academy do not carry out regulated activities.

Further details of the FCA regulations can be found in:

PERG 8.23.1 G 01/07/2005 RP

Under section 19 of the Act (The general prohibition) no person may, by way of business, carry on a regulated activity in the United Kingdom unless he is authorised or exempt. The meaning of regulated activity is set out in Part II of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (the Regulated Activities Order) (as amended). Any person who breaches section 19 of the Act commits a criminal offence for which the maximum penalty is two years’ imprisonment and an unlimited fine.

On a final note, my good friend George says:

“There should be a wall, between advice and products, between advice and large institutions, and between our regulators and large institutions. We need an integrity that is impeccable. Until we actually institute a way of bringing good heart, great integrity and a fiduciary relationship that is sustainable into the industry, we are going to fail. We have to make this change, and we have to make it now.” – George Kinder, father of the financial life planning movement, 2019.

My mission is to teach non-regulated financial advisers how to give meaningful non-regulated financial advice.

If you are interested in becoming a Non-intermediating Financial Planning practitioner see our ongoing Mentorship at £49 per month. This includes:

  •  Quarterley meetings via video call with Steve
  •  Unlimited availability to get in touch with Steve if problems arise
  •  Peer group structured mentorship programme.

For more information: Visit the Academy of Life Planning

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