Not so long ago, the market view was it would be impossible for advisers to remain independent, as the requirements to do so were perceived to be too onerous. However, a recent NMG survey of IFAs for Aifa indicated that 72 per cent expected to be giving independent advice after the RDR has come into force.
The FSA has consulted on new guidance on the independent-restricted divide. To be independent, a recommendation must be based on a comprehensive and fair analysis of the relevant market.
What constitutes a relevant market has caused a deal of confusion. The FSA has said that firms providing independent advice will need to be able to provide advice on all types of retail investment products.
I have heard it said it is impossible to know every product in the market. And it is. But the emphasis is on competence to advise on all sectors. It is still a high standard. There are some product areas that an adviser would rarely consider because they know they do not fit their clients’ needs. To be independent, the adviser would need to ensure they are competent in those areas which they may be rusty on now. Research to find suitable products would follow as part of the advice process if required.
FSA has indicated it is possible to restrict the relevant market and remain independent where it is solely serving clients whose investment needs are limited to the firm’s specialism, such as ethical and socially responsible investments.
The firm would need to market itself in a way to attract such clients and screen new prospects to ensure that their service is appropriate to the needs of each client. In practice, the FSA makes it clear it expects limiting product choice in this way to be rare.
The FSA considers operating a panel to be consistent with independent advice. However, an independent firm should be able to advise off-panel if the interests of the client merits it. Therefore, an adviser would need to maintain an awareness of the general market so they are able to identify where an offpanel solution is best for clients.
But the FSA seems to contradict this with its advice on platforms. It says it is unlikely that a firm using a single platform would be able to be independent.
However, presumably, the same logic for panels is relevant. That is, if the adviser maintained an awareness of what is off-platform and was able to identify when suitable for clients, they could still be independent. It may not be the most practical way of maintaining independence but the rationale of being independent is being competent for all relevant sectors of the market and being able to identify suitable products. How an adviser does that, should be a matter for them.
Chris Hannant is policy director at Aifa