6th February 2012
Independent or Restricted, shine a light someone please?
On 2nd February at 1.00pm Derek Bradley, CEO of Panacea conducted a FREE webcast via Thought Leadership Live.
The webcast looked at FSA assurances to the IFA community that RDR is truly in the interest of the consumers with the benefit of having digested the results of our survey asking IFAs if they believe their clients see the RDR proposals as a benefit as well as measuring how much they actually know about what is about to happen in their name.
With over 740 responses it was clear that consumer awareness was very low indeed.
It is also becoming increasingly clear that the question of who will be truly independent and who will be restricted in 2013 is most uncertain at this stage due to the fact that advisers themselves are not really sure themselves about the definition.
Why?
Alan Lakey put it very well in his observation that “Regulators and politicians just can’t help themselves. They take a simple concept, which is universally understood, and they complicate it to the point where nobody understands and we lose the will to argue.
Ten years ago both advisers and consumers understand the clear distinction between an ‘independent adviser’ and one who was restricted in some way. The IFA brand became a known quantity and was pushed by consumer journalists as the Rolls Royce of advice.
This clarity was diminished when the FSA decided that depolarisation was the way forward. This enabled non-independent advisers to pretend they were independent by the use of phrases such as “best of breed”. This weakened the ‘independent ‘ brand as consumers could no longer easily distinguish between IFAs and restricted advisers. In fact, the FSA cannot distinguish either as they confirmed in a FOIA response when they admitted they could not differentiate between independent and tied advisers because some firms operated both models!
The ultimate fiasco is the mandated ending of the ‘independent’ tag for the majority of advisers. The FSA believes that ‘independent’ means offering a comprehensive range of products whereas consumers have always understood it to mean offering products from the whole of the market.
How this will work in practice is, like many aspects of RDR, unclear. However my understanding is that a firm that works within a defined area, such as pensions only, will not be able to claim independence even if they offer access to all pension providers.
If correct, then I and probably 90% of post RDR survivors will have to use the term ‘restricted’. Imagine how confused my clients will be when I explain that nothing has changed, I still operate a whole of market service but I cannot call myself independent.
In truth, I have only been able to find one truly independent business. One that is free to do what it likes is free from outside interference and also free from any responsibility or accountability. What’s more, it has nothing to fear from the FOS or the FSCS and, incredibly, its fee income has risen exponentially over the years”.
The subject of “independent or restricted definition” was discussed in some detail with Richard Hobbs and Alan Lakey in this presentation and I think the discussion throws some light where it is clear there is darkness.
The presentation explored some of the survey responses as well as illuminating the perceived client attitudes toward RDR and how they can be tackled.
So if you missed it live, join Derek Bradley, Richard Hobbs, Director, Regulatory Consulting, Lansons and Alan Lakey, IFA, Partner at Highclere Financial Services as they discuss the subject of restricted v independent advice as well as other key points of our RDR survey and whose responsibility it is to educate your clients. They also comment to the survey's findings on:
- the elimination of bias in the market;
- ensuring the adviser is the true agent of the consumer;
- clarity over the costs of advice;
- appropriate qualifications for financial advisers.
Comments (3)
I know I have been tarred as an unalloyed fan of the RDR, but the following piece that I wrote back in 2010 might add something:
Independent/Restricted
• If you declare yourself to be an independent adviser you will need to consider a broader range of products (beyond packaged products);
The FSA definitions are:
A ‘retail investment product’ is
(a) A life policy; or
(b) A unit; or
(c) A stakeholder pension scheme; or
(d) A personal pension scheme; or
(e) An interest in an investment trust savings scheme; or
(f) A security in an investment trust; or
(g) any other designated investment which offers exposure to underlying financial assets, in a packaged form which modifies that exposure when compared with a direct holding in the financial asset; or
(h) A structured capital-at-risk product;
Whether or not any of (a) to (h) are held within an ISA or a CTF.
So please tell me which of these is NOT a packaged product? An Investment Trust, an ETF and a Structured Product are all packaged.
We can advise on individual shares, but we can’t deal in them – unless we use a wrap and then it rather defeats the object, as costs are added. In any case we are not stockbrokers and although we may offer a view we are not in a position to monitor and trade on a daily basis – as is often required of direct equity investments. Yes we can give some tax advice, but that doesn’t make us accountants. (It’s bizarre that a stockbroker will now be considered restricted. What do people expect – when you go to the dentist you don’t expect to have your piles treated!)
Yes many of us advise on bank accounts – and if this is what they mean – why don’t they just say so?
So what else is there that isn’t packaged – fine wine? (You bet!) Gold bars, direct property (we do give advice on this – mainly via mortgages!), vintage cars (yes please!), stamps? Instead of talking about ‘non-packaged products’ – please spell it out.
As I have so often repeated this whole issue is surrounded by vested interests who want to make it as scary and complicated as possible so as to persuade IFAs to become restricted. I admit that restricted will suit the larger organisations. However when at FSA seminars it has been made abundantly clear that although we should be aware of ‘the wider view’ we are not necessarily expected to recommend, nor are we expected to include everything we will not recommend into the report (obviously!).
When I asked the question: “Well how will you establish whether all things have been considered” the answer was illuminating – they don’t really know! Basically we are expected to keep details in our files to show that we have knowledge and my guess is that the Regulator will expect to see a greater use of Investment Trusts and external cash accounts. As to ETFs and Structured products – they themselves are not at ease with these and I have folders full of antipathetic comments from the Regulator, consumer bodies and analysts.
In the end this whole issue is somewhat of a farce and in my view, once things settle down after RDR, we will find that all this is not as nearly as bad or difficult as it has been painted and my guess is that many of those who have been driven to become restricted will perhaps have a change of mind (mainly the smaller firms).
Finally what is not made at all clear by anyone is how will this work in practice? Do we have to make a submission to the Regulator telling them of our intended status after 31/12/12? What evidence will we have to submit to support? How will the regulator check?
Indeed as I have whined so often in the past - how will the Regulator police the divisions? How will they know that a restricted adviser is disclosing as he should? That an independent is truly independent? I just don’t see how they can enforce all this in an effective way.
It’s just a shame that we didn’t push these points more strongly at the consultation stage. (Not for want of my trying – but it’s evidently too late now).
Harry Katz 07/02/2012 09:16
I'm surprised. I can think of countless institutions and regiulations that set out in law what one can or can't do, but invest no money, or time, in creating a way to effectively enforce what they have set out in law.
Some examples:
Fox Hunting. Totally and utterly ineffective. So few have been prosecuted it makes the railroading of anti hunt legislation law on the sixth attempt, a ridiculous and expensive exercise. But what the heck, when you have a landslide majority you can pass anything you like.
Smoking in cars. Tell me that this is any less dangerous than the use of mobile phones. You could put a cigarette holder on the windscreen and inhale through a tube....
Mobile phones. I know of only one person who has ever been fined for the use os a mobile phone whilst driving. She was caught at a red light in blatant view of a police car. Serve her right, but how many others do we see that get away with it?
Regulators will regulate society when they know they can get away with it, spend industry and/or taxpayers money and make it politically suited to their needs. RDR is exactly that. Costs a fortune, benefits no-one and the blame can be apportioned to many, in hindsight. Why can't we have legislation based on accountability and responsibility?
callomon1 07/02/2012 09:39
However I would say that enforcing no phone or no smoking in cars is a darn sight easier as there are no grey areas. Either you are smoking or you are not. What I tried to say was that it is almost impossible to prove the case one way or the other with regard to independent/restricted.
You can't say that of your examples. It is easy to see if someone wears a daft red coat and lets his dogs tear a fox to pieces. In your examples the law - although clear - is not being enforced. In my example the 'law' is far from clear and looks like being enforced on false premise.
Harry Katz 07/02/2012 17:52
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