Blog: Did AIFA get it right on restricted advisers?

Clive Waller explains why he is backing the trade body’s decision to open its doors to restricted advisers.

Following the rather extreme reaction to the announcement that AIFA will (inevitably) admit restricted advisers, I have returned to look at all the issues again to see if my own thinking, together with far better informed people than I, are wrong on this.

I re-read all FSA output on this (sad, I know). It took several hours, and I made notes.

Three points strike me:

•  In PS 10/6 3/2010, the FSA expressed apprehension that IFAs might opt for restricted status, in effect doubting their motive:

“We are concerned that some respondents felt the new requirements would result in a move by advisers currently holding themselves out as independent to offer restricted advice''.

As restricted advisers will be caught by the adviser charging rules and will need to meet the same higher professional standards as independent advisers, we do not feel there is a compelling case for an independent adviser to become restricted, and our research supports this assessment.

•  The FSA appears to associate restricted advice with companies providing products, e.g. life companies or asset managers. Although they have once more revised their definition of ‘product’, they are very consistent in their application of this. If you look at the revised COB, they quote several examples of disclosure of restricted advice all around product providers. The implication here is they are referring to investment product provider companies – that is certainly the way the customer would read it – as opposed to a DFM arrangement or a piece of software such as a platform, which is where the difficulties lie, as well as different assets such as ETFs, which demand significant additional expertise.

“Restricted advice we will advise and make a recommendation for you after we have assessed your needs. We [can] [Note a] only offer products from a limited number of companies. You may ask us for a list of the companies whose products we offer.” [Note b]. (revised COB).

There are more examples and all around product provider companies.

Despite this apparent intention, the FSA then imposes rules/conditions that make IFA status untenable for many.

The best interest rule means that even if an IFA doesn’t recommend a product/asset class etc, he must “demonstrate clearly” why not.

This demands expertise, competence, research etc across all products, markets etc.