Loud and proud: Why restricted advisers will shout about specialism post RDR

Vince Harvey, head of training & development for Brooks Macdonald Group, discusses why some clients may prefer restricted over independent advice.

While the FSA’s stated objectives have remained constant, much noise continues to be made about what the practical implications of the retail distribution will be (RDR). The big question is not really about whether or not RDR will come in on schedule or even getting the right qualifications to be seen as professional; it is what types of business will be commercially viable in the long term?

A focus lately has been on independent versus restricted or the possibility of being both (albeit marketing the whole as restricted). While “independent” may be the gold standard, many clients do not need independent advice so some form of restricted advice will work for them. Similarly, some firms do not see the need to offer the range of products and solutions required to be independent.

Business models

I often hear people say that that they want to remain pensions specialists – it is what their clients expect too. We are discretionary managers (DM) and it is a very effective business model for us – no one (IFAs, clients or the firm itself) wants our investment managers to be looking into life and pensions products. We will be restricted and describe what we do as specialising in investments – we are good at it and proud to be focused on our expertise.

IFAs addressing investment needs should consider what will work for their clients (after they have been segmented). For those who want to be accountable for investment decisions, platforms offer a cost effective means of achieving this. The FSA have stated that it is unlikely that one platform will work for all clients.

If recommending a model portfolio that cannot be varied, then the IFA has to understand how the model is made up and compare it with all other retail investment products in a fair and comprehensive manner. DMs may be restricted but if the IFA understands the offering and it is in the best interests of the client then adviser independence is retained.

Distributor Influenced Funds (DIFs) can be recommended, and independence retained, where they can be shown as suitable following a comprehensive review of the market.

Challenges ahead

Keeping up to date – not only on UK investment offerings, but also on those being marketed offshore – will be a challenge, although many clients may not be prepared to give up UK protections. We anticipate that many IFAs will happily pass on this responsibility in the investment sphere to others – they will have their work cut out with the rest of the advice process.

The challenge will be for IFAs to document the process by which they have arrived at the right platform or DM, client by client, as well as providing evidence of each fee agreed and how potential conflicts of interest have been identified, mitigated and disclosed to clients. We believe that clients will recognise the value of the IFA monitoring performance and regularly updating objectives and circumstances.