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The restricted versus independent debate has polarised industry opinion. Maria Merricks talks to three industry experts with conflicting views...
With less than two years left on the RDR stopwatch, advisers should be well on the way to finalising their service propositions.
But for those still in the planning stages, deciding on whether to be restricted or independent is one of the biggest decisions to make.
As of 1 January 2013, a firm can only be classed as ‘independent’ if it provides advice which is “unbiased and unrestricted, and based on a comprehensive and fair analysis of the relevant market”.
For other firms there is ‘restricted’ status. This includes advisers recommending products from a single provider and those offering whole of market advice but on specific areas only.
Debate regarding the best approach has divided the industry. We talk to three advisers who have implemented very different styles.
“A restricted status has the potential to cause confusion. Consumers should ensure they are getting independent advice from 2013 onwards, so they can be confident of getting the best advice available.
“As a firm, we decided to offer independent financial advice under the current rules because it is what is best for our customers. It means we are able to make recommendations without bias or the risk of any commercial influence.
"When the new rules come into force, we will continue to provide independent financial advice because it is what is best for our clients and it is what wealthier investors demand from their advisers.
“There is a place for non-independent advisers in the market, primarily as a product sales channel.
It is important that consumers understand that what they are getting is inferior to independent financial advice, and that they are not misled into thinking the service on offer is somehow quasi-independent. When we speak to the customers of ‘restricted’ advisers, we often find that the marketing message suggested what they were getting was somehow equivalent to independent advice. IFAs should recognise that tied advisers are well practiced when it comes to dealing with any objections around their lack of independence.
“Post-RDR, I think consumers will view the restricted label with some confusion, but essentially it will be down to the profession and individual firms to educate consumers so they understand the differences.”
“We have always operated on the basis there is so much duplication in the market that once we have identified a client’s needs, we feel comfortable we can offer a small number of providers and a limited range as opposed to whole of market.
“For what it is worth, I think that is what most IFAs do anyway: call themselves independent but invariably use only a small number of providers.
“We think the difference between providers is sometimes confusing for consumers and most do not spend a great deal of time worrying between AXA and Aviva, for example. They are interested in advice and want to make sure whoever they bought the product from has gone through a rigorous selection process.
“Frankly, I do not think consumers care about the label ‘restricted’. They look at people as financial advisers and as long as the adviser explains clearly what it is they do, the client will be more interested in a person who is suitably qualified and trustworthy.
“I think we will see more and more advisers coming into the restricted space because of an increase in requirements and cost, however, I do not think it will affect their ability to serve their customers.”
“On the restricted advice side we specify exactly which providers and which products we are using. We select them using a range of criteria and in our eyes they represent the best of breed.
“The whole of market arm has an obligation to source the entire market to deliver the most suitable outcome for the client.
“I do not think it is helpful to segregate clients into one or the other because they both have their part to play. A particular client might have some needs best served by restricted advice, but the same client might have different needs best served by whole of market advice.
“For example, if there is not a great deal of differentiation in the market for a particular product or service, yet the price difference between restricted and independent is significant, why should the client pay more when there is not much difference in the outcome? There are quite a few situations is retail financial services where this applies.
“I do not think anybody in the industry would say the ‘restricted’ label is positive to consumers. At a time when it is essential to get as many members of the British public thinking about funding for their retirement, for example, we understand when people say it looks
negative.
“There has always been and will always be a place for whole of market and restricted advice. There are places for them based on consumer benefit; the real issue is about disclosure.”
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| Comment | Carby, Bamford and Davis debate 'restricted' advice |
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They would say that - wouldn't they.
As may be expected I am firmly in Martin’s camp on this. There are some points that Martin didn’t bring out: 1. Restricted (as he implies isn’t really advice at all) still requires level four and fee charging - so why would an adviser bother? 2. Much of the answer to the above lies in the reactions from the other two respondents – both head bananas of large organisations. And therein lies the secret. Firstly how really independent have network members ever been? The reason that these guys favour this route is that they still believe they can leverage the providers. Then it makes monitoring their ‘foot soldiers’ that much more straightforward. In other words it has practically nothing to do with client advantage and everything to do with the perceived benefits to the firm 3. Also remember that you can actually be restricted to one provider only. That in effect makes you tied. In fact restricted is the old tied or multi tied under another name. 4. It is thefore evident from the foregoing that advisers who are directly regulated will probably remain Independent. This implies smaller will be independent – larger will be tied. The network members may be happy to become restricted, but for those who are not the path is clear. Anyway it seems evident that the Networks will be in a bind anyway. Their whole proposition is based on controlling (and milking?) their members. With fee charging comes the possibility of them loosing control of cash flow, so it seems likely that some of them will convert to a service proposition with a flat fee (or some such) much along the model of Simply Biz. To quote Susan B Anthony (US Suffragette) “Independence is happiness”.
Posted by: Harry Katz
Why does independent advice equal good advice
There seems to be an assumption by many in the industry that for advice to be good it needs to be independent, or to put it another way only independent advice can be good advice. I think many are mistaking advice with implemetation or rater product selection. As a consumer I want good financial advice and to be honest independance has nothing to do with that at all. As for implementation, as long as the product selected is fit for purpose I care not one hoot if my adviser has slected from the whole market of a smaller subset. As an industry we need to accept that the consumer is more interested in the outcome and the cost of getting to that outcome than whether the advice is independant, restricted or called something else eqully meaningless to them.
Posted by: Peter
Independent = Independent
Peter I'll bet you are not just an 'ordinary' member of the public. (Perchance are you with SJP?) My guess is you have an axe to grind. Even if you are genuine then you just don't get it. A Restricted or other 'lower' grade will be in thrall to a single or limited selection of providers and one way or another be concerned that you buy something. After all they are what is now classified as tied or multi tied. An indpendent will charge you for advice - whther or not a transaction takes place. If you don't think there is a difference I'm willing to wager that long term experience will show you otherwise. Odd isn’t it that the Law Society and The ICAEW both insist on using independents – have you ever wondered why? They obviously don’t share your view.
Posted by: Harry Katz
Open to truth
I've read all the comments. I can see both arguments but as ever we have a smart IFA choosing to create a smear against all tied, multi tied or restricted. When will they get off their high horses. I'm sure this guy is good at his job. Dies he think all the others are not or that all IFAS act as true independents - surely not!! Here is the dilemma - the public don't care about RDR. The industry brought this on itself because of the tribal war of IFA v tied. My experience having been on both sides suggests that what really matters is a long standing relationship between client and adviser is key. I'm sorry Harry but your type make this while debate pointless. I'm guessing you would never ever have taken commission???!!! By the way before your reply - I'm an IFA!
Posted by: Paul
Restricted
It really depends who, how and the basis for any restricted panel. As an IFA, pre RDR, I would love to work with a restricted panel as long as the person, orgnaization, head honcho, who created that restricted panel, clearly defined the rational for the panels created and the "creator" had PI cover. Its all about accountability. To have a restricted panel, which had credible research, halaleja, I could sack all the researchers and half my compliance department. I totally agree with the posters who suggest that clients want solutions and those solutions may not be independent. After all, are all the banks and building societies all of a sudden going to close their doors. For far too long, the old boring voices of the likes of Harry Katz and his cronies have been singing like vitriolic parrots. Wake up world, its 2011, things change and I bet you Harry that distribution channels change in 2014, not becasue of the regualtor or advisors, but becasue the market drives the change! oh, by the way, I am working to level 6, but there again I am young enough to enjoy and understand the work.
Posted by: Martyn Sinclair
tied or not
Perhaps we can debate without giving any sector or person a hard time, to pick up some of the comments, change will happen, some good some bad depending on your perspective. The point of all of this posturing is to help all to make a decision about where they are going to be. I am not against either sector as we need both to be vibrant. neither could survive without the other and as an industry we are not servicing all of the population. I suggest that we stop having a pop at each other and get on with it.
Posted by: robin Seymour
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Restricted or independent
I am sure that there will be restricted advisers - just as much as there are tied or multi-tied advisers. But if you were offered the choice between restricted or independent advice, all things being equal, which would you choose? Of course; restricted sounds just so....... restricted. Of course restricted advice could turn out to be very good.
Posted by: Danby Bloch