Welcome to the world of the restricted IFA

Michael Trudeau

Last week our most-read story was one in which research revealed eight out of the 10 biggest advice firms in the UK will use restricted models now that the Retail Distribution Review has come into effect.

Indeed only Hargreaves Lansdown and AWD Chase de Vere have said they will offer independent advice, while Towry, Lighthouse, Brewin Dolphin, Investec Wealth and Investment, Charles Stanley and Close Brothers all took the restricted plunge.

The other two on the list, St James’s Place and Skipton Group, were already not independent pre-RDR and will therefore be restricted under the new world order.

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There are two things which have been nagging at my mind since researching this article, and both have a significant effect on what the above information means.

First, is going restricted really that big of a deal? After all it’s the Financial Services Authority that has changed its own definitions, and not necessarily that the companies have changed their service offering. Sifa made a strong argument last week that independence should really be about impartiality and I’m tempted to agree. On the other hand, Gill Cardy over at IFA Centre staunchly defended independence, saying it is the only way to fairly serve customers.

Where do you stand? If an IFA was an IFA beforehand, and without changing what it does finds itself restricted from January, does this mean they had been doing something wrong all along? Or does it mean that the badge of independence isn’t as meaningful as some believe? Or, does it mean that standards are rising - like they are in terms of transparency and qualifications - and advisers will simply have to work harder to maintain their title?

In other words, is it the river moving, or the fish?

I mean does independent really even mean independent anymore? As far as I know it used to tell prospective clients that if you used an IFA you wouldn’t be shoehorned into a product by a specific provider simply because the adviser was tied to them.

Now it seems to have lost that meaning, instead indicating that the adviser can recommend pretty much any type of product on the market. If I’m looking for a mortgage or a pension, what do I care if my adviser can recommend a Ucis? I want unbiased advice, not irrelevant advice.

There are a lot of people on both sides of the argument, and many make their case convincingly.

The second point highlights the dangers of statistics. We have numbers from the FSA suggesting only 8 per cent of advisers who were previously independent planned to go restricted post-RDR. There are other figures kicking around all over the place.

But what I would like to see is the number of individual advisers going restricted compared to the number of companies making the move. If the ratio was high this would suggest it was the larger firms who were opting for the restricted model while smaller advisers may be more likely to put in the extra work to keep their independence tag.