Independent or restricted?
Choosing independent or restricted advice will depend on the client’s needs, the adviser’s expertise and profitability.
A wise person once said: “In the absence of facts, speculation fills the void”. That has certainly been the case within financial services since the RDR was announced.
It is perhaps unsurprising that, given the size and significance of the change that the FSA is about to implement, speculation about the evolution of retail financial services has become a sport in itself.
The early days of the RDR discussion were dominated by advisers’ qualifications and the way they categorised and charged their clients. However, the industry is becoming increasingly exercised over how advice should be delivered, and whether it should be called ‘independent’, ‘restricted’ or ‘simplified’.
This is, unsurprisingly, an emotive and personal subject for many advisers, particularly those who remember the days of polarisation, or the split between independent advisers and those that were tied to product providers. To many within the adviser community, the structure that the FSA is proposing under the RDR looks and feels like regression.
The ambiguity of ‘comprehensive, fair analysis’ and ‘relevant market’ all make it difficult to determine just what is expected of independent advisers
The natural, and most widespread, response of advisers has been to declare their commitment to independent advice, perhaps borne out of a belief that independent status means more of the same, or even ‘the future’, while a restricted model represents a step back in time.
But upon closer consideration, it becomes easy to see that the ‘real’ issues that will determine what’s right for a client, and for an advisory business, will need to be built on more solid foundations than how the adviser likes to describe themselves. (If this seems harsh, ask yourself how the response might change if the FSA was advocating terms such as ‘select’ or ‘channelled’ advice.)
In spite of the detail the FSA has now shared, there remains some uncertainty among advisers as to the parameters of these models. It states: “Independent advice is defined [as] a personal recommendation to a retail client in relation to a retail investment product where the personal recommendation provided meets the requirements of the rule on independent advice”, which is:
a) that the recommendation is based on a comprehensive and fair analysis of the relevant market; and
b) that the recommendation is unbiased and unrestricted.
Less helpfully, the ambiguity of ‘comprehensive, fair analysis’ and ‘relevant market’ all make it difficult to determine just what is expected of independent advisers.
It is, however, increasingly accepted that advisers will be required to do more to demonstrate their competence and capacity across the entire retail investment market.