The FSA has now issued its RDR Implementation questionnaire to 50 firms.
It is probably not a surprise as to what areas have received its scrutiny. The FSA’s top three points of scrutiny would seem to be: target market, scope of advice and charges.
I am assuming most firms understand their target market, and have made efforts to set reasonable fees. But what is with the infatuation with independence?
The majority of the trade press still refer to ‘IFAs’ (this publication excepted of course), and from my own (admittedly unscientific) research most smaller firms still stick doggedly to the independent label.
For St James’s Place it is business as usual; whilst some of its partners may have been confused by its status, SJP is under no illusion – it has been, and will continue to be, a direct sales force.
Most of the banks and wealth managers have stopped pretending they are representing anything other than their own interests. Several of the largest, previously independent, firms have also adopted the ‘restricted’ label; the most notable being Towry.
So why do so many small firms persist in branding themselves as ‘independent’?
For many the original definition of independence came from an unwillingness (or inability) to work for others. It is likely no coincidence that many firms were established from those who left larger organisations, banks and insurers. I am no execption to this, and freely admit that I feel restrained in a larger company.
There is also probably a noble, but misguided, perception that clients care. They really don’t. They might think they do, and of course, they are right for being suspicious of direct salesforces who only represent their own interests; but restricted could be “all the market, apart from the rubbish”, and independents can still show plenty of self-interest!
Clients generally care about clarity, peace of mind and honesty – but these things are special – could it be that clinging on to ‘independence’ is trying to be special?
Largely as advisers, we deal with intangibles, which make it hard to be special. It is rare we can quantify the benefits we deliver so we cling to other differentiators.
For example, our firm has badges such as “chartered”, “multi-award winning” and up until recently, “fee based”.
In a world where all firms are required to be fee-based, ‘independence’ can be the last bastion to defend and differentiate ourselves from our peers.
All of this is a little odd, as independence comes at a cost, and a risk.
Extrapolating the FSA definition of independent, anything that is whole of the market, minus just one option, must be restricted. So why would a firm want to take the risk that they are missing anything?
In respect of the cost, a firm that is holding itself out as independent, must evidence it has considered all the market including the rubbish. I would argue independence is about considering all packaged products, all wrappers, all managers, all funds, all research tools and all modelling tools. It is a fulltime job! For smaller firms would it not be a better expenditure of effort to accept they are restricted, and hire an additional employee?
I propose that time, money and energy that is no longer expended in maintaining records for the sake of independence, where it represents no client benefit, could well be more profitably employed for client retention or attraction?
Alistair Cunningham is financial planning director at Wingate Financial Planning