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Alistair Cunningham: Should you really be clinging to independence?

Many advisers are clinging to the independent label for sentimental reasons rather than logical ones.

Alistair Cunningham MM blog

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


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There are 17 comments at the moment, we would love to hear your opinion too.

  1. It’s a tough one to admit that one might be doing the wrong thing for the right reason.

    It’s a truism that few middle market clients truly understand and/or need what an IFA offers but as more and more of our brethren go the restricted route surely that raises the value of the the proposition of the remainder?

  2. I have no issues about the sincerity displayed in this article but the whole point – presumably missed by SJP, wealth managers and apparently Wingate – is that advising clients is not just about selling financial products.

    So RDR is here which is supposed to separate the influence of product providers and ‘advice’ in the brave new world but if this article is true, we’ve just gone back 30 years. A bit like a financial ‘Life on Mars’.

    Independence isn’t a quaint concept simply clung on to by odd people who can’t work in large bonus culture, profit dominated organisations. It’s about putting clients interests first, being professional and ethical and yes, to continue to be in business, make profit.

    This is a disappointing article.

  3. Rubbish article. A failure to understand what independence is and the risk it poses to some clients.

  4. Alistair Cunningham 28th February 2013 at 9:49 am

    Duncan – I think you may have missed a key point. The FSAs definition of independence is different than the literal dictionary definition. You can show impartiality, professionalism and ethics towards clients and be ‘Restricted’. I’m in total agreement that planning advice is not wholly about product, but the current FSA definition of independence is! That being the case, why would the title “IFA” in anyway be relevant to the quality of the service you provide?

  5. I wonder if there is still misunderstanding about independence and the FSA’s strictures.
    As far as I understand it (after numerous conversations at No. 25) it is NOT only about products on which the FSAs proposition rests. They also (in addition) would like to see that non-product solutions are also considered.

    I am not a lifelong Financial Services operative. However when I did enter the industry (after being an independent manufacturer) it was evident that independence even then was the way to go.

    Yes I do follow the arguments about whole of market, but where are the restrictions? Do you fail to incorporate tax advice, do you fail to advise on life assurance or mortgages? How can you truly be a holistic financial planner UNLESS you are independent?

    Then there are the other factors:
    1. Working for the client without other considerations getting in the way.
    2. Being able to set your own tariff, without taking instructions from elsewhere.
    3. Fully owning your own business, so that no outside shareholders or funding agencies can exert even the suspicion of influence.
    I well realise that is a very restrictive (excuse the intended pun) definition of independence, but I do think it is valid nonetheless; even though it does exclude those who work in large firms, networks or who are otherwise constrained by employers.

    Perhaps that is precisely why the larger organisations are all migrating to a restricted model. Accordingly as has been mooted – small is not only beautiful, but independent to boot!

    I have to say that those who seek to denigrate, undervalue or otherwise talk down the concept of independence still remind me of the Aesop’s fable of the Fox Without A Tail.

  6. Fox Without a Tail 28th February 2013 at 1:27 pm

    Harry, You appear not to have noticed that the FSA has ripped up the dictionary to redefine the word independent!

    If you cannot advise on mortgages, ISAs, personal pensions, SIPPs, SSASs, EFRBS, QROPS and QNUPS you cannot call yourself independent!

    As Alastair says: Extrapolating the FSA definition of independent, anything that is whole of the market, minus just one option, must be restricted.

  7. I cannot work out if Wingate is still an IFA or have they or do they intend to be, restricted. If they take the Towry and others restricted path of recommending an in- house dfm fund, then it is dissapointing as the potentialadditional profits from shoehorning clients into one or other funds are not to client advantage. I sincerely hope this is not the case.

  8. This article does seem to move things forward a little.

    It is clear that one person’s ‘independent’ is not necessarily the next person’s. As Harry points out, even the regulator’s definition of independence doesn’t really accord with what they would LIKE to see (this extra stuff is guidance not rules).

    The current FSA definition is based on a range of products. Advise across this range and you can call yourself independent, the rest is fluff.

    Perhaps what is needed is a more generally defined notion of what indpendence is that can be agreed, pointed at and promoted by like-minded adviser. To me independence means that you are acting as agent of the client and take account of their overall financial well-being.

    Looking at the IFA Centre website, it’s odd that it doesn’t say what independence is. Does that mean the FSA’s definition is blindly accepted? Perhaps it should be defined in the way advisers see it that also resonates with clients. Just keep it simple.

    As for all those perfect ‘independent’ advisers, however you wish to define yourselves, Aesop is also attributed to the saying “All that glitters is not gold”…

  9. and so by definition, if you are restricted then there is a 100% chance you are not offering your clients all the options.

  10. Alistair Cunningham 28th February 2013 at 2:06 pm

    For the record, Wingate Financial Planning has eight employed advisory staff, and a similar number of support staff.

    We continue to be Independent, but (correct me if I’m wrong) forms no part of our marketing or other literature, other than required statutory disclosure.

    I think a lot of smaller firms are metaphorically blowing their own feet of with their vocal support of independence, and expect a huge jump to restricted in the next (say) twelve months.

  11. IMHO we place a high importance on independence ‘label’ as we feel that it’s part of the evidence we can use to justify that we have no conflict of interest with our clients.

    Just like pre-RDR we would also outline how separating out our advice charges from our advice process also demonstrated that there is no conflict of interest.

    Whilst I realise maintaining independence comes at a cost, I still feel that it’s a prerequisite of being able to offer unbiased advice.

  12. @Anonymous 1:58pm

    True in theory and a nice smug soundbite. The problem is that being independent is no guarantee of getting advice on anything other than the FSA’s list of packaged products.

    It could be that the ONLY reason I’m restricted (other than being honest about it…) is because I’ve decided I won’t consider non-EU based UCIS. I cover everything else on a whole of market, agent of the client basis.

    On the other hand my local ‘independent’ won’t give advice on my shares, pension transfer, long term care needs or mortgage.

    What’s in a name? Less than it used to be…

    @ Paul Stocks
    I agree with you. What you seem to be suggesting is that independence should mean you are the agent of the client and not tied… if only it were that simple…

  13. Alistair’s reply was interesting as we have never had “Independant” in our busines title and I haven’t called myself an IFA for about 5 years. Harry joked about the title on my business cards as they say “Money Coach and Financial Facilitator” as that is what I do. It also stimulates the discussion for clients (and Harry) to ask what that means, I then explain my firm and I are (currently) Independent and whilst we will always meet the dictionary definition, as the FSA can change all laws and rules including the dictionary, we may have to describe ourselves differently at a later date, but hopefully NOT.

  14. @ Fox without a tail. For reference its only retail investment products I believe that fall under the definition so this would not include mortgages.

  15. Dumb and Docklands Dumber 1st March 2013 at 11:17 am

    Still at least its a good job this whole area has been made far simpler for clients to understand, right?

  16. Blog detailing why independent is better, and an advertisement as a media IFA??
    So many people shouted at me after my piece on disclosure (not pro one thing or the other as it happens, merely disclosing which!!) but I maintain what I said – if you are proudly offering a restricted service, as SJP and Towry do, then make that clear – if the actuality or the touchy-feely branding of independence doesn’t matter to you or your clients then walk the talk and stop referring to it, except when you absolutely have to in the disclosure documentation … or accept that your behaviour actually gives the lie to the sentiment behind the article and that maybe it does matter and that some people really DO want Independent advice.

  17. @Gillian Cardy

    That’s all well and good but what do you mean when you talk about independent? Is it merely the FSA definition or something a little more?

    I know people who don’t really give a fig about whether they are independent or not but don’t want to be called restricted. If the word was ‘specialist’ and it referred to whole of market investment (rather than wrapper) focussed advisers I don’t think there would be such an issue.

    Ask a heart surgeon to start calling himself a restricted doctor and I’m guessing you’ll get a negative reaction because the word is emotionally charged. But I bet he’s happy referring to himself as a specialist.

    I suspect that’s why you got the reaction you did. If one of the alternatives to ‘independent’ was ‘specialist’ I doubt your article would have been written.

    So, given that IFA Centre is all about the promotion of independence, what is your definition of ‘independent’? It’s not mentioned on the website…

    And please don’t take this as a criticism, I’m in favour of independence (my definition is simply being an agent of the client) but I’m against opportunistic and cheap shots against what in many cases are highly professional and better qualified ‘restricted’ advisers.

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