Independence: what’s in a name?
Being a ‘chartered’ adviser may become more important under the RDR, but independence will still have real value.
After the RDR, the success of investment advisers marketing themselves as independent will depend on the ‘vintage’ of independence involved.
Since the Financial Services Act 1986 cemented the ‘independent financial adviser’ as an official concept, it strikes me that IFAs may have been a little lazy about their status.
Though it predates even this columnist’s experience of writing about financial advice, I am reliably informed that the regulatory authorities used independence as a useful weapon to remove some bad practices from the market and establish some much needed clarity by polarising advisers’ status.
Before this, some brokers were ‘tied’ to certain product providers but masquerading as independent, with a small ‘i’ at least. Following the act, however, most of this ‘passing off’ stopped: you were either tied or you were independent.
If you were tied, independent status was largely something to aspire to. It allowed you to recommend a much better range of products, which at the time was mostly what advice was about.
IFAs were divided between life and pension people, and those who were more interested in investment, rather than just recommending the occasional Isa towards the end of the financial year.
After the RDR, the success of advisers marketing themselves as independent will depend on the ‘vintage’ of independence involved
Even an advocate of independence, however, would acknowledge that the ‘i’ became a little tarnished over the past quarter of century. Arguments raged about mis-selling, and later commission. Regulators became fixated on uncovering IFAs who were churning clients’ money.
IFAs were suspected of using their independence as an excuse for shifting clients into areas where upfront commission was easier to obtain, as soon as the clawback period on pension contracts or bonds were up. One senior executive at a tied sales force famously suggested that IFAs were simply bastardised multi-ties.
Moreover, because of a lack of movement on IFAs’ qualifications, regulators and professional bodies also maintained that the minimum level of qualification was insufficiently high. Some advisers started using other terms such as ‘planner’ or ‘wealth manager’, ‘consultant’ or ‘architect’, and attached huge value to their certified and, more recently, chartered qualifications. It was at this point that the term IFA lost its sheen.
This process hasn’t been helped by survey after survey suggesting that independence can’t really be defined by consumers, although, as I have said before, there are a lot of lazy questions in surveys. I suspect that marketing people have also been uncomfortable with independence, or at least the concept of it. Collective identities don’t sit well with the financial services equivalent of Mad Men. Instead, marketeers are always asking why there are no national advice brands to speak of.
More from John Lappin
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- Advisers must remind clients great crash not ancient history
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