If my firm is regulated can we jointly advise with an unregulated partner?

We were recently asked whether a firm that is not regulated could partner with a firm that is regulated such that the regulated and unregulated firms could both give investment advice or arrange/bring about deals? The answer is almost certainly no!

When two UK-based firms are jointly giving investment advice, both advisors need to be regulated. Some of the requirement and implications are listed below:

Regulation requirements

Both must be regulated: Each advisor must be authorised and regulated by the Financial Conduct Authority (FCA) in the UK, regardless of whether they are working individually or together. This regulation is necessary to ensure that they adhere to the professional and ethical standards and rules and regulations required to provide investment advice.
FCA oversight: The FCA’s requirements include suitability checks, qualifications, adherence to professional standards, and compliance with both UK and applicable EU regulations. This ensures that clients receive advice that is in their best interests and meets regulatory standards.

Implications if only one is regulated

Legal Risks: If only one of the advisors is regulated and the other is not, this could pose significant legal risks. The unregulated advisor would not be legally allowed to provide investment advice. This could result in penalties from the FCA for both the unregulated advisor and possibly for the regulated advisor if they were aware or should have been aware of the compliance shortfall.
Reputational Damage: Employing an unregulated advisor can damage the reputations of both the individual advisors and their firm, potentially leading to a loss of client trust and business.
Financial Penalties and Sanctions: Both advisors could face financial penalties and sanctions if found to be in violation of regulatory requirements. This includes providing investment advice without proper authorisation.
Client Protections: Clients are at risk of receiving advice that does not meet the regulated standards, potentially leading to poor investment decisions based on non-compliant or unethical advice.

Conclusion

It is crucial that both advisors are properly regulated to avoid these risks. If there's a situation where only one advisor is regulated, steps should be taken to rectify this immediately, either by ensuring that the unregulated advisor obtains the necessary authorisation or discontinuing their role in providing regulated advice. Consulting with legal experts or directly with the FCA can provide guidance on how to ensure both advisors meet the regulatory requirements. Contact us if you need more information.