Independence has always been a badge of honour to many advisers. It was the status they aspired to before the RDR came along.
For others, the restricted model offered better prospects. It meant they could service clients without the burden of proving whole-market coverage to the regulator.
Neither view is wrong, yet advisers are still split on which approach is best. The bar for independence has been set far higher than previously, giving way to a choice: an investment into the independence ethos and label, or a focus on how restricted can work in a post-RDR world.
Identifying how many advisers have gone restricted is almost impossible. The Association of Professional Financial Advisers (Apfa) – renamed from Aifa after deciding to accept restricted advisers last year – said it does not have up-to-date figures on its membership split, but added that previous studies suggested 80 to 85 per cent would remain independent. Chart 1 shows research carried out by Defaqto pre-RDR suggesting 87 per cent would remain independent.
Proponents of independence say it is the gold standard of advice. Others say badges like ‘chartered’ and higher levels of qualifications matter more. But who is right?
What does the FCA say?
According to the regulator, the overall standard for independent and restricted advisers is the same: they must meet the same level of qualification, ensure the same level of suitability and adhere to the same adviser charging rules. The key differences and similarities are shown in Table 1.
An independent adviser must advise on all retail investment products – the definition of which has been widened and includes, among other vehicles, life policies, personal pensions, investment trusts, structured products and even Ucis where appropriate (although an FCA paper in June confirmed that Ucis will not be suitable for the majority of retail clients). IFAs are likely to need to use more than one platform to maintain independence, the FCA says.
But this does not mean looking at every single product every time a client walks through the door. According to the FCA, “A firm can use research to distil the product market into a panel and then select a product from the panel when giving independent advice.” However, it must be able to go ‘off-panel’ if that would be in the best interests of the client. As highlighted by recent FCA investigations into inducements, selection of providers for a panel must be based on sound judgement of the firm and not linked to any benefits offered. In contrast, restricted advisers may limit their offering by either product type or provider.
Picking a label
