Should restricted advisers charge less than IFAs?

Donia O’Loughlin

There has been much debate about the new(ish) adviser propositions - independent and restricted.

Over the last 12 months, we have seen a slow move from those offering independent advice to restricted, and for the majority this is due to regulatory compliance. In essence, they argue that it is easier - and cheaper? - to be an RFA than an IFA.

And that is what a few of independent networks have also strongly intimated to me recently. Probably because there is not much of a difference at all.

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Data from the Equifax MyTouchstone database reveal the average hourly rate charged by a restricted adviser using a fee model is £157 per hour and by an independent adviser £158 per hour.

Apfa research, published in July last year, revealed that the average equivalent hourly rate charged by advisers overall is £156 and the majority of advisers have not increased their costs since RDR-implementation.

IFA networks Sense and 2plan think the difference should be more pronounced, and that more specifically restricted advisers should be charging less and in many cases have dropped their fees.

Steve Young, Sense’s commercial director, said: “Recent statistics on adviser earnings already show that there is clear blue water between independent and restricted advisers. Why would a client pay the same for an inferior service?

“What we are seeing now is a new form of polarisation. Transactional, product-driven advice will increasingly be offered by restricted advice groups whilst high-quality financial planning will be sought by higher net worth investors and delivered by highly qualified, fully independent advisers in smaller firms.”

Chris Smallwood, chief executive of 2plan Group, agrees, stating that he thinks clients are “paying too much for restricted advice”.

He says: “Restricted advisers do less work and maybe they are happy to do that. If it’s easier for the restricted adviser and they have less work to do then surely this must be reflected in the adviser charge presented to the client?”

Obviously these firms have a vested interest in presenting restricted rivals as over-charging, but do they have a point, or are they focusing on the wrong issue?

Sesame - who has both a restricted and independent proposition - agrees that we have moved from a product-based environment to a professional advice proposition, and that to focus on the division between IFAs and RFAs misses the point.

John Cowan, Sesame Bankhall Group’s executive chairman, said: “As a profession, I believe we need to unite behind a common cause, which is the delivery of professional financial advice to consumers, and not argue amongst ourselves on something which is largely unimportant to clients.

“The debate is becoming sterile and I believe we are in danger of missing the point. There is a huge and urgent task of delivering professional financial advice to the UK population and it doesn’t really matter what the label says.”