Restricted advice is gaining favour in lead up to RDR
With just six months to go before the RDR comes into effect, many advisers are still making a number of key decisions about how their business will operate under the new rules.
In January this year, we completed our latest survey of platform users, which found that 87 per cent of advisers were intending to retain their independent label under the RDR. Only 7 per cent stated that they were going to go down the restricted advice route.
In a separate adviser survey in March, which looked at advisers’ attitudes and behaviour regarding the RDR, we found that the proportion intending to remain independent was closer to 70 per cent. At the same time, those planning to offer a restricted advice service increased to 10 per cent. Furthermore, 11 per cent of advisers suggested they would offer both an independent and a restricted service.
Some firms may be drawn to the option of offering an independent service to some of their clients and restricted advice to others
We have previously predicted that as the requirements of independence become clearer – or at least become more real for advisers as they make their RDR preparations – the number of restricted advisers would increase.
Our survey findings are now confirming the emergence of this pattern. We predict further increases during the remainder of 2012 and will continue to follow this within our next round of adviser research.
With the implementation of the RDR just months away, this remains a topical issue, particularly after the FSA published its finalised guidance on independent and restricted advice last month. After all, 60 per cent of advisers surveyed by Defaqto in March felt that the FSA had still not provided enough clarity on the independent and restricted options.
With an updated perspective on this key issue from the regulator, more of those advisers who were yet to make a final decision on their approach may warm to restricted advice as they realise that such an approach may be suitable for their business and their clients. Following a review of their clients, some firms may be drawn to the option of offering an independent service to some of their customers and restricted advice to others. Separate trading names and business descriptions would need to be defined and declared if this joint option is progressed.
Historically, IFAs have placed great value on the independent label. But in spite of the potentially negative connotations of the restricted badge, it will still present a strong option for post-RDR advice. Advisers ultimately need to consider whether their declared intention to remain independent is an automatic, emotional one or a practical business decision.
By inference, a restricted adviser is one that does not have to scour the whole of the market to find suitable products for their clients. The adviser can limit themselves to the products of a single company, single group of companies or a limited group of companies. The restricted adviser, free of the obligations of the independent label, can still focus on the markets – and key providers within them – that will meet a range of needs and provide value to their clients.