Despite the trend going against them, 70 per cent of IFAs do not believe that they will ever submit to restricted status, according to Harrison Spence.
The financial service consultancy surveyed more than 300 IFAs on the subject recently, finding that advisers were more determinedly independent than when asked the same question six months ago, when 58 per cent said they would never become restricted.
The findings follow data revealed by the Association of Professional Financial Advisers, showing that restricted adviser numbers doubled last year, although independent advice still dominates.
Their report stated that restricted advice now represents a fifth of the market, while the number of IFAs fell 9 per cent last year. Out of 14,550 adviser firms registered with the Financial Conduct Authority at the end of last year around 77 per cent of advisers offered independent advice.
Brian Spence, the firm’s managing partner, told FTAdviser that the trend was being driven by the regulator. “It’s mostly down to the FCA’s ineptitude, being unclear about the meaning of independence. Some IFAs initially shifted to restricted to protect their backs because of the lack of clarity.
“Then more recently the FCA came out with comments on sub contracting, which put the breaks on the trend, and now of course they’re reviewing the definitions.”
At the end of last year, the regulator told FTAdviser that it is looking at moving away from advice labels, after admitted that consumers who were taking restricted advice generally thought they were taking independent advice.
Indeed last month, the Financial Conduct Authority asked for views as to how far a more modest European definition of ‘independent’ advice is “practically different” to its own standard, in a move that could pave the way for a major shift in the standard applied under RDR.
Mifid II’s standard is different, just asking independent advisers to look at a “sufficient range” of products from a “sufficiently diverse group of providers”. This allows IFAs to redefine the breadth of products they need to consider before providing a personal recommendation, the paper said.
Harrison Spence’s research also found that IFAs spend more time on regulation and paperwork than they do with clients, with 44 per cent saying one quarter of their time is client facing compared to three-quarters paperwork and 45 per cent estimating it’s more like 50/50.
The consultancy’s survey showed that one third of IFAs already see the move towards restricted status as something of an inevitability, with 13 per cent seeing themselves becoming restricted within the year, a further 5 per cent in two years and another 11 per cent in five years.
Some of the reasons IFAs are going down the restricted route include resolution of issues such as reduced risk and professional indemnity insurance problems, according to Mr Spence, who concluded that “the benefit of aligning with an umbrella firm providing the security of a pre-agreed exit formula is also a factor”.
peter.walker@ft.com
