Why restricted is the new frontier

I have always been the fiercest advocate of independent advice and the IFA’s approach to satisfying customer outcomes. However, now I have nailed my colours to the restricted mast as the chief executive of a ‘restricted’ advice business.

What has happened after all this time to convince me of the merits of the restricted approach?

The first point to make is that ‘polarisation’ as a solution has moved on, but for many, the debate hasn’t and remains black and white. Independent good, restricted bad.

Polarisation as a concept in investment advice was introduced by the 1986 Financial Services Act, after which firms had to choose between selling the products of a single product provider, or advising clients as an IFA on the full range of products available on the market. This latter requirement incorporated the obligation to provide ‘best advice’.

For some people, restricted advice is viewed as akin to the old tied advice approach via a single product provider; therefore inferior and less likely to provide a suitable customer outcome.

Solutions offered via this route tended to be from a very narrow range of expensive, inflexible, underperforming products promoted by bank, building society or insurance company salespeople.

However this simply isn’t the case any more. For the majority of people requiring financial advice, the only thing wrong with the restricted approach is the name.

As consumers, we don’t tend to want narrow choices; we perceive that if something is restricted we might deprive ourselves of something that is better. Everyone likes choice, but few of us like to choose.

However, the fact is that there is so much to choose from and so much duplication in the market, that it becomes virtually impossible to precisely define which products and services are the most suitable for each individual client’s specific needs.

Such a level of analysis might require an eye-wateringly expensive investment service which puts it beyond the reach of all but the most affluent of consumers, prepared to pay for such a high level bespoke scrutiny of their needs; an approach that does very little to narrow the advice gap.

As a result, I think we will see more and more advisers coming into the restricted space because of an increase in requirements and cost, however, I do not think it will affect our ability to serve our customers.

The restricted approach requires a firm to begin the selection approach by examining what the most suitable and appropriate investment solutions are for the majority its clients. In this way it is similar to the client segmentation exercise that firms undertook as part of RDR and is as much about which clients fit into an investment process, as well as identifying which clients are profitable and those which aren’t.

However, isn’t this what most IFAs do anyway: call themselves independent but invariably use only a small number of providers?

I also believe that the difference between providers is sometimes confusing for consumers and most do not spend a great deal of time worrying about the differentiators between various offerings. They are interested in advice and want to make sure that whoever they bought the product from has gone through a demanding selection process.

Moreover, I do not think consumers care about the label ‘restricted’. They look at people as financial advisers and as long as the adviser explains clearly what it is they do, the client will be more interested in a person who is suitably qualified and trustworthy.

Tim Sargisson is the chief executive of Sandringham Financial Partners.