How restrictive is restricted?
The restricted model will come into its own in 2013, offering advisers the freedom to design a solution that puts the client first
Much has been made of the options available to financial advisers in the run-up to the RDR. During a very lengthy gestation and with the pioneers of RDR in 2006 mainly off the scene, we are now entering the final furlongs of an endurance race.
As a financial advisory industry, will we be ready to accept or even embrace the biggest shake up the industry has seen since the first wave of regulations came into force in 1987? Since that time we have seen the polarisation debate that differentiated between independent and tied advice. The differentiation was predominately whether you operated as the appointed representative of a company or were able to select from the whole market, the latter being known as independent advice. At that point the titles were pretty clear and then came along the concept of multi-tie, which no doubt added to the confusion.
The RDR creates a further shake up with the introduction of new titles. So bearing in mind the enormity of the change we will witness next year, should we really be hung up on titles? In my eyes our most important duty is to provide clear and precise financial planning advice and recommend financial products that meet our clients’ needs.
The FSA’s definition of independence is “unbiased and unrestricted and based on a comprehensive and fair analysis of the relevant market. This is designed to reflect the idea of a genuinely independent adviser being free from any restrictions that could impact on their ability to recommend whatever is best for the customer”.
The definition goes on to introduce the term “retail investment product”, including not just packaged products, but also structured investment products, all investment trusts, unregulated collective investment schemes and any other investment that offers exposure to underlying assets, but in a packaged form which modifies that exposure compared with a direct holding in the financial asset.
Cutting through the FSA’s appalling syntax, we next take a look at the FSA’s definition of restricted advice. It contains the proviso that advice which is not independent will need to be labeled as restricted advice. Restricted advisers are still required to meet the FSA’s suitability requirements even if they offer restricted advice. Naturally where restricted advisers choose to limit their product range to certain range of investments or providers there will be clients for whom these are not suitable.
My own take is that opting for the restricted route gives far more clarity to the client on the service being provided.
And then the FSA offers tips on whether to choose the restricted model or stay independent and almost offers a qualified opinion on which route is best but then retreats for fear of offence, by adding “you should choose the advice service that best suits your business and clients” and then, perhaps a little patronisingly, confirms that “restricted advice:
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