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Topics: FSA| RDR| Independent Financial Advice
An adviser’s independence is “fourth or fifth” on a consumer’s priority list, an IFA has argued, after research suggested some clients still have no idea if their IFA is whole-of-market.
Jonathan Fry, who runs his own Yorkshire IFA, said independence alone would have little bearing on where people seek financial advice after 2012.
"The independence of the adviser is probably no higher than fourth or fifth on the list of priorities for the vast majority of consumers," he said.
Fry's remarks follow fresh research, commissioned by the Financial Services Authority (FSA), which found only 61% of more than 5,000 clients who had recently purchased a product through their IFA knew they were an independent practitioner.
"It is apparent that many recent purchasers misunderstand the concept of ‘independent' advice in relation to the adviser they used," the authors of the report concluded.
"The transparency element of the RDR seeks to clarify this concept and it is clear there is room to improve consumer understanding."
Fry said it was "important" consumers understood the difference between independent and ‘tied' advice, but added: "It is very easy to be in an ivory tower of self importance that does not recognise sufficiently that independence is not in any way a commercial guarantee of business."
But Kevin Morgan, managing director of Consilium Financial Planning, said advisers' status would be more relevant as consumers became aware of the RDR.
"If people are given a straight choice, properly explained, between independent and restricted advice, it is a no-brainer," he said.
"It is all about the way [an adviser's independence] is portrayed. I've no doubt people value it; it's just a case of whether they understand what they are getting."
Anthony Badaloo, principal at Church Hill Finance, added: "The results of the FSA research are a huge concern.
"If I was a consumer, I would definitely want to be looked after by an IFA for the simple reason that, if you are not independent, you must be focused on sales."
Following its research, the FSA also set out the baseline criteria on which regulators would judge the success of the RDR.
They include whether consumers understood the ‘type' of advice sought, how many were now engaged in the market, and their perceptions of the financial services industry.
● TODAY
Independent advisers must research the whole of the market and offer advice based on an assessment of their client's needs and circumstances. They must offer a fee option. Source: Money Advice Service
● 1 JAN 2013
Independent advisers will need to consider a broader range of products (beyond packaged products) and provide unbiased, unrestricted advice based on a "comprehensive and fair" analysis of the relevant market. All advisers will have to inform their clients before providing advice whether they are independent or restricted. Source: FSA
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| Comment | The challenge facing 'independent' advisers post-RDR |
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They don't care
Of course my clients know that I'm Independent but do they care ? of course not. They are happy that we have access to as many funds as needed to help them plan and invest effectively. IFAs have always made too much out of the words "Independent" and "adviser". Now we have all the nonsense about Restricted and Independent. As a client I would far rather deal with a specialist (Restricted) adviser than a Jack of all Trades ( new definition of Independent) At the end of the day its all spin and hot air.
Posted by: John Blackmore
Big I or little I
I pretty much agree with John Blackmore. Client know, but don't care so long as oyur thought processes are littel "i" and that your are not big T'd (Tied). They want to know that what you do for them is tailored to them from what is available and based on what you/the client think and nto what you are told to think. It's a bit like the court case going on about Towry, where aldthough the issue is suppsoed to be focused on the contract between adviser and employer, the issue of whether the Towry Model is little i independant is raising it's head as the advisers who wish to use direct or non Towry DIF monies are being little T'd whilst Towry claim to be big I'd. There ia also the issue of Hargreaves Lansdowne, advertised as INdependant Financial Advisers, when in fact the advice element is very small in their business and most people deal with tehm as an Independant execution only platform and really that is how they should descibe themselves.
Posted by: Nameless
And the evidence?
What ever the merits of :- Tied vs IFA ; Indeminty commission vs fees ; Advice vs Selling ; Technical specialist vs generalist Etc etc. We see it time and time again. The likes of the Banks (& other saintly named concerns) continue to deliver improving operational performance delivering arguably the inferior of EACH of the above to clients and often to the sophisticated end of the personal market! [When you hear of an indemnity commission having been paid to a tied adviser of £700k plus for delivering a very special arrangement to a wealthy client that allows the client to take 5% pa withdrawals with tax deferred....! Then you know that the something is letting the client down] These operations have clearly got their communications suitably tailored and targetted at the personal level. If we are trying to 'pull' clients to us the IFA market needs to combat this by attempting to clearly differentiate the service at a market level ie Do you (the client) understand the difference? It would pay if you did! Or of course just rely on professional connections to find suitable clients for you!
Posted by: Tony
So say you - we know different
Solicitors and accountants will only refer to Independents. IFAP have spent a fortune over 20 or more years educating the (intelligent) public. A report by Which? in February this year calls for the label ‘restricted’ to be replaced with ‘sales representative’. I concede that some people may be unaware of the status of their adviser and that Mr. & Mrs. Average probably don’t care – as they also probably don’t have the resources to make caring worthwhile. But for the sector of the community that many current IFAs deal with, Independence is well known and valued. There are many of us who are approached simply because we ARE independent. We have heard this nonsense over the years from those who (for whatever reason) can’t attain independence and it has always been like the Aesop’s fable of the fox without a tail.
Posted by: Harry Katz
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independence confusion
61% of advisers probably don't know what independence will be after RDR kicks in. Of course for the last 10 years independent estate agents who sell Allied Zurich policies and independent mortgage advisers who use a panel of three insurers must surely muddy the waters.
Posted by: MarkG