Personal Financial Planning Traffic light guide to regulation BUSINESS WITH CONFIDENCE icaew.com
Personal Financial Planning Advice Regulation considerations Contents In 2015 we launched Tomorrow s Practice, a report looking at the forces of change affecting the environment in which accountants and their clients work. The findings of this report illustrated the opportunities for ICAEW Chartered Accountants to use their skills and experience to offer a range of advisory services beyond the traditional business arena. Personal financial planning is one area in which ICAEW members are providing additional services to clients, advising on issues such as estate planning, insurance, pensions and investments. By offering these additional services, practitioners are adding value to their existing client relationships as well as generating new and long-term income streams. To help you navigate this sometimes complex regulatory area, we have produced this traffic light guide to signpost the advice you can offer, whether you hold a practising certificate, a Designated Professional Body (DPB) licence or you operate under FCA regulation. We hope that you find this information useful. Amanda Digne-Malcolm FCA Director, Members Department Stephen Corner FCA Chair, ICAEW Mainstream Investment Business working group Page Accumulation Pensions 4 Accumulation Portfolio management 6 Accumulation ISAs, bonds and unit trusts 8 De-cumulation Pensions 10 De-cumulation ISAs, bonds and unit trusts 12 Personal protection 14 Corporate finance 16 Estate planning Pension 18 Estate planning Term insurance 20 Estate planning Whole of life insurance/ 22 insurance bonds Auto enrolment 24 Tomorrow s Practice 26 The information contained in this pocket guide is not intended to be exhaustive. For more detailed information on all aspects of advice and regulation please refer to the ICAEW Designated Professional Body (DPB) Handbook or contact the Technical Advisory helpline. Information provided is correct at the time of printing. E&OE. Further information 27
Accumulation Pensions Factual discussions at a general level with a client about the tax treatment of pensions and general information on the different types of pension schemes that can be used, but not discussions on the merits or suitability of specific pension products. For example, a discussion on the generic differences between stakeholder pension plans as opposed to self-invested personal pension schemes, with general comments about their characteristics while refraining from discussing or identifying any specific pension product. Providing the client with the name and contact details of an appropriately authorised firm (but not passing clients details to the adviser) who is capable of providing objective, non-conflicted financial advice which will meet the client s needs. Arranging to make payments into, or to place property into, a personal pension scheme, including a self-invested pension scheme at the request of a client, but not recommending the acquisition of any rights in such a scheme. Discussions with a client on the relative merits and suitability of a specific pension contract eg, a particular self-invested personal pension offered by company X. Recommending that a client purchases a specific personal pension contract. Advising a client to invest money, or put property, into a specific pension product. Passing a client s details to an appropriately authorised firm with the client s consent for the adviser to contact the client. appropriately authorised firm and identifying whether this is suitable or not, but not giving alternative advice. Implementing investment planning in cooperation with an appropriately authorised firm. 4 Personal Financial Planning Traffic light guide to regulation Personal Financial Planning Traffic light guide to regulation 5
Accumulation Portfolio management Managing investments under a power of attorney and providing all routine day-to-day decisions relating to investments (excluding all types of insurance contract such as general, life assurance, pensions, term assurance) are taken on behalf of the client by an appropriately authorised firm. Acting as a trustee and personal representative, provided the person acting as a trustee does not hold himself out as being able to manage investments and is not remunerated for what he does in addition to any remuneration he receives as trustee or personal representative (excluding all types of insurance contract such as general, life assurance, pensions, term assurance). which do not concern the acquisition of a particular security or contractually-based investment (eg, life policies, investment linked long-term health insurance). Discretionary management of investments. Decisions: to sell or not to sell existing investments where, for example, this would result in a reduced tax liability; concerning investment strategy eg, for tax planning purposes; to appoint or remove an external fund manager; or 6 Personal Financial Planning Traffic light guide to regulation Personal Financial Planning Traffic light guide to regulation 7
Accumulation ISAs, bonds and unit trusts Factual discussion at a general level with a client about the different types of investments, such as explaining the differences between unit trusts and ISAs but not discussions on the merits of a specific investment. Passing a client s details to an authorised firm for the provision of independent advice, with the client s consent for the adviser to contact the client. The giving of advice by a trustee or personal representative, where he gives this to a fellow trustee or personal representative or to a beneficiary under the trust, will or intestacy concerning his interest in the trust fund or estate, provided no remuneration is received over and above that for services as a trustee. Arranging deals in investments, provided the arrangements are made by a person acting as a trustee or personal representative to be entered into in their capacity as such or by a beneficiary under the trust, will or intestacy, provided no remuneration is received over and above that for services as a trustee. appropriately authorised firm and identifying whether this is suitable or not, but not providing alternative advice. On the instruction of a client, arrange with an authorised firm the buying or subscribing for these types of investments. Implementing an investment plan in cooperation with an appropriately authorised firm. Discussions with clients on the relative merits and suitability of a specific investment offered by company X. Recommending that a client purchases a specific investment and carrying out the transaction. 8 Personal Financial Planning Traffic light guide to regulation Personal Financial Planning Traffic light guide to regulation 9
De-cumulation Pensions Discussions with a client on the different ways to access their pension, or passing this on to someone else as part of inheritance tax planning. Providing the client with the name and contact details of an appropriately authorised firm (but not passing the client s details to the adviser) which is capable of providing objective, non-conflicted financial advice which will meet the client s needs. Discussions with, or making a recommendation to, a client about the disposal of any rights or interests in a personal pension scheme and executing the transaction. Passing a client s details to an independent financial adviser with the client s consent for the adviser to contact the client. independent financial adviser and identifying whether this is suitable or not. Implementing investment planning in cooperation with an appropriately authorised firm. On the advice of an appropriately authorised firm to a client, dispose of some or all of the rights under a personal pension scheme to provide funds for other purposes. 10 Personal Financial Planning Traffic light guide to regulation Personal Financial Planning Traffic light guide to regulation 11
De-cumulation ISAs, bonds and unit trusts Passing a client s details to an independent financial adviser for the provision of independent advice with the client s consent for the adviser to contact the client. The giving of advice by a trustee or personal representative where he gives this to a fellow trustee or personal representative or to a beneficiary under the trust, will or intestacy concerning his interest in the trust fund or estate, provided no remuneration is received over and above that for services as a trustee. Passing a client s details to an appropriately authorised firm with the client s consent for the adviser to contact the client. Arranging deals in investments, provided the arrangements are made by a person acting as a trustee or personal representative to be entered into in their capacity as such or by a beneficiary under the trust, will or intestacy. Regulated and cannot be done without Providing the client with advice which leads to the disposal of an investment. For example in the course of tax advice or tax planning, the selection of realisable investments that have unrealised capital gains that give rise to opportunities equivalent to a bed and breakfast type arrangement. On the instruction of a client, arrange with an appropriately authorised firm the selling of these types of investments. Please see the DPB handbook for other referral considerations. Implementing an investment plan in cooperation with an appropriately authorised firm. appropriately authorised firm, identifying whether this is suitable or not and providing alternative advice. There are no additional investment activities which specifically require FCA authorisation, provided a licensed firm s regulated activities can reasonably be regarded as incidental and complementary to its professional services. 12 Personal Financial Planning Traffic light guide to regulation Personal Financial Planning Traffic light guide to regulation 13
Personal protection Non-investment insurance contracts (Fee protection insurance, key man cover, private health insurance, private medical insurance, term policies etc) Factual discussions with a client about the need for insurance generally and the type of insurance product (key man, fee protection, medical insurance etc) that would be most appropriate, but not discussions on the merits or suitability of specific insurance products. For example, a factual discussion on the generic differences between private health insurance and private medical insurance or a suggestion that a client take out business interruption insurance, while refraining from discussing or identifying any specific product. Providing the client with the name and contact details of an appropriately authorised firm (but not passing the client s details to the adviser) which is capable of providing objective, non-conflicted financial advice which will meet the client s needs. Providing information to clients about claims and assisting an insurer in the administration and performance of claims handling. Discussions with clients on the relative merits and suitability of a specific pure protection insurance contract such as key man or fee protection. Recommending that a client purchases a particular pure protection insurance contract. appropriately authorised firm and offering alternatives where the advice is identified as unsuitable. Participating in insurance planning in cooperation with an appropriately authorised firm. On the client s instructions, arrange with an appropriately authorised firm the buying, subscribing for or underwriting of a particular insurance contract. This includes completing a proposal form for a client and/or sending the proposal form to an insurance broker or insurance company. Introducing a client to an authorised firm by passing a client s contact details to an appropriately authorised firm for that firm to contact the client. Help a client in the administration and performance of a particular insurance contract by assisting in the completion of the claim form or notifying the claim on behalf of a client, or negotiating with the insurer on behalf of the client. There are no additional investment activities relating to pure protection insurance policies for which FCA authorisation is required. This is provided any recommendation to purchase a pure protection policy by a licensed firm can reasonably be regarded as incidental and complementary to its professional services. 14 Personal Financial Planning Traffic light guide to regulation Personal Financial Planning Traffic light guide to regulation 15
Corporate finance Advising and arranging the formation of a company, provided no advice is given to a prospective purchaser of shares. Providing a share valuation for a client, provided no advice is given about whether to sell or purchase the shares. Advice and assistance to a company to issue shares, provided this does not result in bringing the company and potential investors together. Please see part 3 scheme 5 of the DPB handbook for more details on this exemption. Advising and arranging the sale or purchase of a company (listed or unlisted), provided this meets the corporate exclusion in the Financial Services & Markets Act 2000 (see RAO Article 70 of the Regulated Activities Order) (ie, the object of the transaction may reasonably be regarded as the acquisition of day-to-day control over the affairs of the company or the shares (together with the ones already held) being sold or acquired amount to 50% or more of the voting rights and the transaction is between two parties, each of which is a body corporate, a partnership, a single individual or a group of connected individuals). Discussions with clients on the relative merits of the sale or purchase of unlisted shares and the sale of listed shares. Recommending the sale or purchase of unlisted shares and the sale of listed shares. Arranging for the sale or purchase of unlisted and listed shares. Arranging equity for debt exchange for a company with financial problems to increase stability. authorised firm and, if unsuitable, offering alternative advice but only in relation to unlisted shares. Discussions with clients on the relative merits of the purchase of listed shares. Recommending the purchase of listed shares and carrying out the transaction. 16 Personal Financial Planning Traffic light guide to regulation Personal Financial Planning Traffic light guide to regulation 17
Estate planning Pension Providing the client with the name and contact details of an appropriately authorised firm (but not passing the client s details to the adviser) which is capable of providing objective, non-conflicted financial advice which will meet the client s needs. Factual discussions with a client about passing their pension onto someone else as part of inheritance tax planning. Regulated and requires FCA authorisation Discussions with, or making a recommendation to, a client about the disposal of any rights or interests in a personal pension scheme and carrying out the transaction. On the instruction of a client, arrange with an appropriately authorised firm to dispose of some or all of the rights under a personal pension scheme. Passing a client s details to an appropriately authorised firm with the client s consent for the adviser to contact the client. independent financial adviser and identifying whether this is suitable or not. Implementing investment planning in cooperation with an appropriately authorised firm. On the instruction of a client, arrange with an appropriately authorised firm to dispose of some or all of the rights under a personal pension scheme. 18 Personal Financial Planning Traffic light guide to regulation Personal Financial Planning Traffic light guide to regulation 19
Estate planning Term insurance Factual discussions at a general level with a client about investments such as term assurance, whole of life insurance, insurance bonds etc, which can be used for tax planning purposes. Providing the client with the name and contact details of an appropriately authorised firm (but not passing the client s details to the adviser) which is capable of providing objective, non-conflicted financial advice which will meet the client s needs. Providing information to clients about claims and assisting an insurer in the administration and performance of claims handling. Discussions with clients on the relative merits and suitability of a specific term insurance contract. Recommending that a client purchases a particular pure protection insurance contract and executing the transaction. authorised firm and offering alternatives where the advice provided is identified as unsuitable. Please see the DPB handbook for other referral considerations. Participating in insurance planning in cooperation with an appropriately authorised firm. On the client s instructions, arrange with an authorised firm the buying, selling, subscribing for or underwriting of a particular insurance contract. This includes completing a proposal form for a client and/or sending the proposal form to an insurance broker or insurance company. Introducing a client to an authorised firm by passing a client s contact details to an appropriately authorised firm for them to contact the client. There are no other investment activities relating to pure protection insurance policies for which FCA authorisation is required. This is provided any recommendation to purchase a pure protection policy by a licensed firm can reasonably be regarded as incidental and complementary to its professional services. 20 Personal Financial Planning Traffic light guide to regulation Personal Financial Planning Traffic light guide to regulation 21
Estate planning Whole of life insurance/insurance bonds General discussions with a client about different types of investments which provide IHT mitigation, but not discussions on the merits of a specific investment. Providing the client with the name and contact details of an appropriately authorised firm (but not passing the client s details to the adviser) which is capable of providing objective, non-conflicted financial advice which will meet the client s needs. Providing information to clients in respect of claims and assisting an insurer in the administration and performance of claims handling. Introducing a client to an authorised firm by passing a client s contact details to an appropriately authorised firm for them to contact the client. Discussions with clients on the relative merits of the purchase of whole of life insurance or insurance bonds. Recommending the purchase of whole of life insurance or insurance bonds and carrying out the transaction. appropriately authorised firm and identifying whether this is suitable or not, but not providing alternative advice. On the instruction of a client, arrange with an appropriately authorised firm the buying of these types of investments. Implementing an investment plan in cooperation with an appropriately authorised firm. 22 Personal Financial Planning Traffic light guide to regulation Personal Financial Planning Traffic light guide to regulation 23
Auto enrolment Discussions with employers on the relative merits of an AE compliant pension scheme. Recommending a specific pension scheme to employers and carrying out the transaction. General discussions with employees on the different types of pension products available. Providing the employee with the name and contact details of an appropriately authorised firm (but not passing the client s details to the adviser) which is capable of providing financial advice which will meet the client s needs. Arranging to make payments into, or to place property into, a personal pension scheme, including a self-invested pension scheme at the request of a client, but not recommending the acquisition of any rights in such a scheme. Discussions with an employee on the relative merits and suitability of a specific pension contract eg, a particular self-invested personal pension offered by company X. Recommending that an employee purchases a specific personal pension contract. Passing client s details to an appropriately authorised firm with the client s consent for the adviser to contact the client. appropriately authorised firm and identifying whether this is suitable or not, but not giving alternative advice. Implementing investment planning in cooperation with an appropriately authorised firm. 24 Personal Financial Planning Traffic light guide to regulation Personal Financial Planning Traffic light guide to regulation 25
Tomorrow s Practice Further information Tomorrow s Practice is about making change work for chartered accountants and their clients. It s driven by recognition that the market for practitioners has been altered radically by higher audit thresholds, regulation, technology and more intense competition. Businesses, too, face strong pressures and this change is creating a yearning for counsel they can trust. They want advisers who understand them and their business ambitions as well as finances and who proactively identify paths to success. And there s a clear demand from time-starved executives for one-stop advice shops. Our professional inheritance gives us a great advantage; adaptation and innovation will allow us to capitalise on the opportunities these changes bring. Professional training has already given us the skills to analyse a firm and facilitate its growth. The key is to recognise that individual services can be sold as a result of providing and billing for business advice. We must be client led rather than product led. Many practices are already client led and moving into fields such as whole-of-life wealth management, personal financial planning, corporate finance and cyber security. They re embracing technology, together with project and relationship management skills. But whatever services are on offer, it is advice, grounded in real understanding of clients needs, which will be the key differentiator between successful and less successful practices. To find out more about Tomorrow s Practice visit icaew.com/tomorrowspractice For technical resources and professional guidance for practitioners visit icaew.com/practice For more information on the Designated Professional Body (DPB) licence scheme and details of how to apply visit icaew.com/dpb Find out how to join the ICAEW Financial Services Faculty at icaew.com/fsf For information on FCA authorisation, visit fca.org.ouk Questions? If you have any questions about any of the issues in this guide please get in touch. The ICAEW advisory helpline and services are available to all ICAEW members. Advice is free and confidential. Whether you have a technical or ethical query, want some career guidance, or need counselling on a personal issue, we re here to help. T +44 (0)1908 248 250 E contactus@icaew.com Skype icaew_uk 26 Personal Financial Planning Traffic light guide to regulation Personal Financial Planning Traffic light guide to regulation 27
ICAEW is a world leading professional membership organisation that promotes, develops and supports over 144,000 chartered accountants worldwide. We provide qualifications and professional development, share our knowledge, insight and technical expertise, and protect the quality and integrity of the accountancy and finance profession. As leaders in accountancy, finance and business our members have the knowledge, skills and commitment to maintain the highest professional standards and integrity. Together we contribute to the success of individuals, organisations, communities and economies around the world. Because of us, people can do business with confidence. ICAEW is a founder member of Chartered Accountants Worldwide and the Global Accounting Alliance. www.charteredaccountantsworldwide.com www.globalaccountingalliance.com ICAEW Chartered Accountants Hall Moorgate Place London EC2R 6EA UK T +44 (0)1908 248 250 F +44 (0)1908 248 260 E practice@icaew.com linkedin.com find ICAEW twitter.com/icaew facebook.com/icaew ICAEW 2015 MSDPLN14367 11/15