profitable practice BY
deena katz
Great Expectations? Think British
New U.K. regulations will force advisors there to make big changes.
You should consider following their lead.
Abig shakeup is coming soon for financial advisors in Britain. Regulations that take effect on Dec. 31 will radically change the way U.K. advisors make money, structure their busi- ness, acquire licensing and more. But don’t stop reading just
because these new rules don’t affect you personally: I think they offer
some important guidance about both the future of our profession and
the future of your practice.
Perhaps the most dramatic change is the ban of commissions
for advised retail investment products. (The new rules do not affect
commissions on insurance products or group pensions.) Starting
next year, British advisors must also disclose and charge clients separately for advice.
Advisors must also identify their
services as being in one of three
categories: independent, restricted
or simplified. Independent advisors must have access to any and all
financial products or solutions that
would be suitable for their client
base. Restricted services offer access
only to a limited range of products;
these advisors will need to describe
the scope of their advice and explain
their services, pricing and value
clearly. Simplified services will
include low-complexity products
and very limited advice for people with simple needs.
• Recommends specific investment products.
• Acts between the client and intermediary
to arrange the purchase of the products.
• Provides ongoing review service to ensure
that the products still meet the clients’ needs.
Advisors who provide all these services will
be exempt from charging a value-added tax.
Advisors who only provide the first four must
charge clients the tax.
Further, U.K. advisors must now have a
higher-education diploma and complete 35
hours of continuing education annually. They must also obtain an annual
statement of professional standing
from an accredited body, certifying
that they meet the new requirements.
This certification would also disclose
any regulated activities — such as
dealing in securities or derivatives
— and list an advisor’s educational
qualifications. (Advisors who do not
have a diploma may take courses over
time to catch up.)
In order to be eligible for an organization’s certification, a practitioner
must be a member of the organization and adhere to its code of ethics.
The United States
has been a leader
in the development
of financial planning
and investment
advisory services,
but it isn’t any
longer.
OTHER RULES
An interesting aspect of the fee process is that firms that provide
advice alone will need to charge value-added tax (currently 20%) to
clients, while those who implement, review and monitor a client’s
assets will not have to charge this tax. Say an advisor follows these
stages of planning:
• Gathers data.
• Analyzes and finds suitable investment options.
• Provides client with reports, financial health checkups and forecasts.
EXODUS EXPECTED
The new rules also include a phased-in capital
requirement equal to 25% of a firm’s annual
operating expenses; full implementation is due
by December 2015.
These requirements are going to change
the financial services industry in the U.K. substantially. In fact, Britain’s Financial Services
Authority has predicted that up to 25% of finan-
Financial-Planning.com
December 2012 Financial Planning 33
