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From Adviser Guide: Independent vs Restricted

Q: Can I be both independent and restricted?

There is nothing explicitly in the RDR regulations that would prevent a firm having both an independent and restricted offering.

By Emma Ann Hughes | Published Jun 13, 2012 | comments

Both a restricted and independent offering can operate within the same regulated entity and legal structure.

An adviser can be both independent and restricted but must make sure their client grasps what type of advice they are receiving.

Chris Hannant, policy director of the Association of IFAs, said advisers should ensure their client is aware what type of adviser you are prior to receiving advice.

He said: “Ensure your client is fully aware of the distinction between the two types.

“If a firm gives both independent and restricted advice it cannot call itself independent.”

Where firms are seeking to have a dual offering approach, Andrew Power, lead Retail Distribution Review partner at Deloitte, said the FSA will expect that the firm has clearly defined and articulated offerings so that the risk of a customer misunderstanding the basis of advice is appropriately mitigated.

Therefore, for operational purposes, or clarity over the proposition, Mr Power said firms may decide to segregate themselves out and one of ways of achieving this is separate legal status for each.

If a firm provides both independent advice and restricted advice, he said the disclosure must clearly explain the different nature of the independent advice and restricted advice services.

In practice, therefore, Mr Power said the FSA is likely to prefer firms to have distinct entities or trading styles to minimise the risk of confusion between the two advice propositions.

George Higginson, chief executive of Sesame Bankhall Group, agreed regulatory requirements may mean that it isn’t practical for individual advisers to operate as both independent and restricted.

However, Mr Higginson said adviser firms may choose to be both independent and restricted, selecting different advisers within the firm to offer one type of advice or the other.

Mr Higginson said: “In the RDR world we are likely to see the emergence of these ‘hybrid’ business models.

“An adviser firm cannot call itself independent if one or more advisers within the firm are restricted: for example, if JD Independent Financial Advisers had six advisers and one of the advisers intended to be restricted post-2012 the firm would have to change its name, for example, to JD Wealth Management.

“However, whilst a ‘hybrid’ firm can’t have ‘independent’ in their firm’s name, any individual advisers working for the firm and offering independent advice can describe themselves as independent, for example, on their business stationery.”

Keith Richards, distribution and development director of Tenet, said firms that wish to offer both independent and restricted financial advice must demonstrate competence in respect of independent financial advice, even if it is only provided occasionally and must also maintain separate initial disclosure documentation to reflect each service proposition offered to clients.

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