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Aifa says IFAs should seriously consider restricted advice

Aifa says advisers should seriously consider offering restricted advice but warns it should not be seen as a “soft option”.

The trade body today released a paper, Advice Horizons, looking to help advisers deal with the retail distribution review.

The paper, sponsored by Legal & General, says that while the concept of restricted advice has traditionally not been very popular with IFAs, it could open up new opportunities.

The paper points to the fact restricted advice does not lower the threshold for professionalism or advisory standards and that some commentators are suggesting that the need to offer a range of wrappers is questionable.

The paper says: “Until recently, restricted advice has been viewed with disdain by many IFAs, but there is a growing view that “constraining” a firm’s activities, and in particular its business processes, can generate efficiencies and also open up the opportunities to partner or joint venture with manufacturers and fund management companies – creating new revenue streams.Adopting a restricted advice model is not a soft option and should be given serious consideration as part of a strategic review.”

The paper says independent advice will become a “premium service” which will create new marketing opportunities as well as financial and reputational rewards.

It says: “Clients value the clarity and certainty of the fact that the adviser works on their behalf and, time and again, research proves that it is “independent financial advisers” who are the most trusted group in retail financial services.

“Referrals from solicitors and accountants can be a significant source of new clients for IFAs as other types of advisers cannot have clients referred to them by these professions. For some firms, who deal with professionals, these links are essential to their business success.”

Aifa says many firms may look to offer a restricted service alongside an independent offering, depending on the service needs of their clients.

The paper warns there is still no clear sign of how simplified advice can be delivered and suggests this issue could be parked until the Consumer Protection and Markets Authority is created.

The paper also suggests advisers could look to develop “advisory chambers” with firms retaining brand and ownership but sharing back-office efficiencies.

It says such a relationship could progress so firms provide shared services to clients based on the depth of expertise within their chambers, which could be nationally dispersed.

The paper says: “The “ownership” of the client could be resolved on a formal, contractual basis, or via an informal mechanism based on quality and value of referrals. Of course, larger firms may also use this model as they centralise specialist advice areas in order to ensure quality of advice and hence, lower their risk profile.”

Aifa says these relationships could be extended to create “professional advisory chambers” in association with law firms.



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There are 13 comments at the moment, we would love to hear your opinion too.

  1. I have been an IFA for 22 years and am fed up with AIFA pontificating about OUR future. Why dont they get a real job instead of guessing what and how others will be working in the future.
    We will survive as we always have – those IFAs that can trade post RDR will do so and those that cant wont!

  2. What this overlooks, like virtually all other articles on this subject, is the difference between advice on new and existing products.

    Most clients would not reasonably expect an IFA to research, analyse and compare every single pension or investment product on the market as the basis for advice on where the they’re likely to be best served by committing new money. For most ordinary clients, the costs of such an exercise would be prohibitive and, in any event, most IFA’s have a pretty good idea of which companies they find acceptable to deal with and which ones are consistently a pain in the backside, however good some of their product offerings may be.

    But clients very often need advice on what they already have, as part and parcel of a strategy for the future. A classic example is where the client has a cheesy old pension plan with a not particularly good provider, but which happens to contain Guaranteed Minimum Annuity Rates. So what the client naturally wants to know from his IFA with regard to his existing plan is whether he should cease contributions, maintain them or increase them. That doesn’t require WoM research but what it does require is the ability of the IFA to provide advice on whatever product may come his way from the entire market of existing products. And that is what distinguishes most IFA’s from any tied or multi-tied sales agent, not whether or not they undertake a WoM research exercise for every client who comes their way seeking advice on where best to commit £200 p.m. to a pension plan or on investing £50,000.

    Why is it that nearly everyone except those who actually do the job out here in the field overlook this?

  3. I thought it was the FSA’s job to get a real job 🙂

  4. I agree with Trefor and Julian.

    And furthermore I don’t believe in ‘restricted advice” or ‘simplified advice”.

    Consumers need comprehensive independent financial advice from people they trust, nothing else is ‘advice’, period.

    Just as a bad will is worse than no will at all I would contend that in general no advice at all is better than ‘sales’ dressed up as advice, restricted, simplified or any other name the providers and banks dream up.

  5. Monsieur Reynard 4th August 2010 at 3:36 pm

    I’m afraid a few of the comments on here indicate that the authors haven’t actually read the RDR proposals thoroughly.

    “Restricted” in the new world doesn’t mean the same as “tied” or “multi – tied” now. There is nothing to stop a restricted adviser giving advice on products that the customer already holds – my expectation is that the FSA will require restricted advisers to do just that.

    Think of “restricted” as the equivalent of flexible multi – tied. Provided the adviser hasn’t signed a single – tied agreement (where the provider takes responsibility for the advice) or a multi – tied agreement with an exclusive number of providers, “restricted” gives an adviser a lot of options.

  6. I am an IFA practising in a less well off area I have no doubt whatsoever that I will be getting out of the Industry in 2012.

    My time at the momement is spent NOT taking exams or preparing for the RDR but building a new business completely free of financial services. I feel like other IFAs in my area we would be wasting our time because the hidden agenda is to rid the industry of the small fry. I know of serveral IFAs that are struggling at the moment, one has taken a part time job and another is reliant on his wife’s salary. These are peaple who have devoted 30 years to the industry and up until a few years ago earnt a reasonable income.

    Yes I am intelligent, yes I could jump through the hoops, yes I could take on more staff but why bother. After this what is going to be the next thing put in our way?

    I would not recommend my worst enemy to pursue a career in this bureacratic laden industry.

  7. Monsieur Reynard is right – but it is the very flexibilityof the restricted label under the rules as drafted that is at the heart of an issue. How does a good IFA practice offering restricted advice differentiate himself from a bank salesman who can only punt his employers’ products – answer he can’t! Which is exactly what the banks wanted all along.

  8. My reading of the RDR interpretation of “Restricted Advice” is similar to M Reynard above, but I agree that in practice, what Julian says is often what is done, i.e. we look and advise on all of a clients older plans and then advise on the future making use of existing plans and avoiding some providers likle the plague…
    In the future I suspect I will remain an Independant Financial Adviser, but with two sets of terms for my clients with many receiving a restricted service i.e. I will outline what I will not be advising them on, hence the service would be restricted. The above is always assuming I decide to stay in the industry, which unlike John is not definate either way!

  9. The observation made by the anonymous Monsieur Reynard (perhaps an employee of the FSA?) is well made. I haven’t read the entire RDR and subsequent voluminous updates. I did make a start but found it so dense and academic that after a few pages I decided that there are better things to do with my life and gave up. It seemed to be such a waste of time and money, some of it mine.

    That aside, although an adviser who has opted for restricted status may still be able to offer comment on any existing plan, there will surely be the unavoidable suspicion in the mind of the policyholder that the adviser will have an incentive to do a hatchet job on what he has already by way of justification for recommending something new from his own limited panel of providers. A true IFA is under no such influence, even though he may be very reluctant to make a recommendation to top up a plan with a provider with which he hates having to deal.

    Is the present system really so malfunctional that there’s any valid justification for introducing yet another new category of adviser? Or is it just another new FSA initiative created largely for its own sake, like so many that have gone before? Is there not a considerable number of much more pressing areas of malfunction within the industry towards the FSA’s regulatory firepower would be much better directed? The Barclays/Aviva debacle and Towry Law’s patently unfair treatment of a large number of its clients are just two examples that spring readily to mind.

    Why is the FSA so intent on interfering with the way in which small IFA’s operate instead of tackling the really big problems, which it so often seems to fail to get round to until much of the damage has already been done?

    Again, I am minded to point out the provisions of the Statutory Code Of Practice For Regulators, which the FSA seems resolutely determined to ignore.

    And I still haven’t received an answer to my question asking what, if any, resources are allocated towards enforcing the Code, so I’ve now had to report the matter to the Information Commissioner. Whether or not that will yield any sort of result remains to be seen.

  10. Martyn Sinclair 5th August 2010 at 2:20 am

    IFA’s will just go and work in a not too far away offshore jurisdiction and continue to somehow working but outside of the reach of the FSA. Sad but true!

  11. Monsieur Reynard 5th August 2010 at 8:58 am

    I can assure you that I’m nothing to do with the FSA, but I’ve had over twenty years of watching successive regulators trying to manipulate the market in order to promote their particular view of what it should look like and how customers should behave.

    My reason for posting is to point out that the FSA has indeed created a debacle but you can rail against it, make it work to your advantage, or abandon all hope and leave the Industry.Assuming you still want to earn a living from fnancial services, you need to focus on developing your proposition to your customers, not just repeating what you are and comparing yourself to those nasty bancassurers.

    So how about this for a proposition:-

    “I’m a fully qualified financial adviser, offering a wide range of financial planning advice. I only deal with providers that I’ve assessed as financially stable, offering competitive products, a track record of delivering, and a strong customer focus. I’m not actually prevented from dealing with any provider, but I have a panel of those I’d prefer to deal with. If you have a need for a product that isn’t available from one of these providers then I can still source it for you.

    I can give you advice on your existing investments/policies/products. I’m not biased by commission, because product providers are not allowed to offer commission anymore, and I’m not allowed to accept it.

    Despite the FSA requiring me to describe myself as offering “restricted advice”, within the limitations I’ve described I’m still required to put your needs first”

    To this old cynic that seems to be a pretty strong proposition for the vast majority of customers. So why would you subject yourself to the FSA’s absolute determination to maintain the sanctity of the new definition of independence? If your customers value your service you can still be entirely credible, but by electing to be restricted you limit the scope for the new regulator to make your life a misery.

    I don’t think your customers care one jot about the RDR, or what you can’t call yourself. They do care about what you can do for them.

  12. What a mess,

    RDR is this the last hurrah for Nu Labour ?

  13. Totally agree with Monsieur Reynard. Unless the current proposed definition of an IFA changes (i.e. made less onerous in terms of having to consider everything under the sun for every client) I think that most of us will be under the restricted definition.

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