According to the FCA’s latest thematic review, the second of three to examine the impact of RDR, most firms that described their services as independent were adjudged to have been telling the truth. In a survey of 113 firms, 88 of which were independent, the regulator established that only four provided ambiguous responses.
But not all financial advisers agreed with the FCA’s latest claim that only a select few misled clients. Paul Gibson, a chartered financial planner for Aberdeen-based Carbon Financial Partners, complained that many advisers used “flowery” language to avoid the term ‘restricted’ and urged the FCA to take action by listing each firm’s advice status on its register.
He said: “Consumers find it very difficult to know whether an adviser is restricted or not. If you read company websites you have to search thoroughly before finding out the answer, and in some cases you just cannot find the information anywhere.
He said that given the descriptions some advisers use about their status, the man in the street may be forgiven for thinking an adviser was independent.
He added: “While the register lists individuals, I think there should be a section advising whether the adviser is independent or restricted, or at the very least whether the firm they represent is independent or restricted.
“I feel the FCA should have gone further as I have met potential new clients who just do not understand the difference, and have not had the term restricted explained to them as well as they should expect by restricted advisers.”
One particular term that has caused plenty of controversy is the ‘restricted whole of market’ one.
Justin King, chartered financial planner at Dorset-based MFP Wealth Management, described this phrase as “an oxymoron” and said that such ambiguity proved that offering the choice of independent and restricted had failed to help consumers.
Mr King added that the FCA’s recent clarification on the two terms had “helped” but warned that the regulator must do more to address the widespread issue, even if it meant contradicting itself.
He said: “The regulator will review this issue again but it does not seem to like to state ‘we got it wrong’. I don’t know any adviser who thinks this has helped the consumer, but I don’t think the FCA will address it.”
A major issue for many in times of such frustration and confusion was a lack of faith in the regulator. One financial adviser, who asked to remain anonymous for fear of reprisals, said the FCA should have listened to concerns surrounding the term ‘restricted’ before implementing it.
According to the adviser, intermediaries have grown frustrated with the lack of communication between the law-makers and those who practice in the field, but “few felt safe to openly criticise the FCA”.
He said the organisation was “surrounded by sycophants like compliance managers, consumer groups and network directors”.
David Crozier, director of Northern Ireland-based Navigator Financial Planning, also voiced scepticism on the political structure of the regulator.
Although he urged firms to be honest, and suggested that those who did not were insecure about the services they offered, he went on to warn that the big restricted firms were potentially treated more favourably.
He added: “I think that firms should be really clear about their status and should not be allowed to fudge.
“The only reason a restricted firm could have for obfuscating the situation is because they do not really believe in their service. I do hope the FCA legislates on this, but I am not sanguine – there are too many very big restricted firms with vested interests and strong lobbying powers.”
One problem that most agreed on was that the term ‘restricted’ has negative connotations. Numerous advisers voiced concerns over how the word appears to the general public, which is arguably the reason why some of those who had made the switch were keen to detract attention from their newly-found status.
Andrew Watts, managing director at Cheshire-based Watts Mortgage & Financial Services, described ‘restricted’ as a “dreadful word” and said that many advisers had found it difficult to let go of their beloved IFA moniker.
He added: “Restricted is a dreadful word and certainly does have negative connotations. I do not know how restricted advisers describe themselves, but I do know that the word independent is important to many clients.”
Don Wernham, partner at Warrington-based Simple Solutions Financial Management, had similar issues with the public’s perception of ‘restricted’ advice.
While his current client base “would not bat an eyelid”, he expressed concern that he would eventually be forced to go restricted and would struggle to attract new clients as a consequence.
He said: “I worry about the misconception of the public – prospects I have not met yet, looking at my name as a restricted adviser versus an IFA on the web. And then saying ‘you know what, I will choose the IFA because he is working for me’. But I accept that it is almost inevitable that I will end up restricted.”
However, Mr Wernham applauded the FCA’s recent acknowledgement of the confusion surrounding the two different advice types and said he was now more confident that he could keep his independent status.
He added: “The Rory Percival interview was very clear from the FCA, something they had previously not been. I am sure I was not the only one who was misunderstanding the definitions.”
But while Mr Wernham was relieved to have retained his independent status, Gregg Bartram, joint managing director at Sheffield-based Alexander Calder Financial, was equally content to call himself restricted.
He said he had “no issue” with its meanings, but rejected Mr Gibson’s call to put such information on the FCA register.
He added: “As ‘restricted’ advisers I have no issue with what it actually means, but of course I do have the issue of what the definition of the word means in the public environment. Therefore, I would not support such detail going onto the register unless an absolute clear and distinct definition was also provided.”
Mr Bartram explained that while he had faith in the services he offered, it was dangerous to use labels like independent and restricted, particularly because the general public had not been educated on their meaning in advice terms.
According to his interpretation, labels “will always mislead or be abused”, which is why he urged the FCA to come up with an alternative solution.
Despite widespread concerns throughout the advisory profession, the FCA confirmed that it has no plans to make any drastic changes to its two models, and dismissed calls to state a firm’s advice model on its register because it would add more regulatory headaches to frustrated advisers and betray their trust.
The spokesman added: “Our recent report into independence found that most firms appeared to be using the description accurately.
“For any that remain unsure, we recently uploaded a video to cover the key issues, we are putting on positive compliance workshops covering the topic, and included good and poor examples in the report itself.
“The third and final cycle will start before the end of this year, by which point we expect firms to have taken on board earlier findings.”
Daniel Liberto is features writer at Financial Adviser
Key points
* Despite voicing concerns earlier in the year, the City regulator told advisers that it stood by its definitions of independence.
* One adviser said the FCA should have listened to concerns surrounding the term ‘restricted’ before implementing it.
* The FCA confirmed that it has no plans to make any drastic changes to its two models.
