Only around 105 advice firms in the UK offer both restricted and independent advice to their clients.
Figures obtained by Money Marketing columnist Paul Lewis have revealed just 2 per cent of the 5,270 financial advice firms recorded provide both types of proposition.
But a growing advice gap means more people than ever are looking for low-cost and simplified financial planning solutions, as greater complexity also drives the need for high-end independent advice – trends which could increase the appeal of hybrid offerings. Despite that, advisers say regulation, lack of demand and potential client confusion mean they are sticking firmly to one or the other status for now.
Highclere Financial Services director Alan Lakey, a restricted adviser, says: “How are you supposed to explain being both independent and restricted to a client and, furthermore, how can they be expected to understand that?”
Yellowtail Financial Planning director Dennis Hall, an independent adviser, agrees: “I think being both independent and restricted is a very confusing message to give a consumer.”
Independent firms account for 85 per cent of UK market by number
Since the RDR took effect in 2013, advice has had to be labelled as either independent or restricted. While restricted offerings can vary greatly based on provider, product or panel breadth, the polarisation of the market caused uproar at the time, with the label ‘restricted’ viewed as pejorative by many advisers who were proud of their independent status.
Five years on, and independent firms account for around 85 per cent of the UK market by number, despite being allowed to practice either or both types of advice. While under Mifid II rules individual advisers must offer just one or the other, firms themselves will still be allowed to serve both independent and restricted clients.
Tenet Group is one of the just 2 per cent of firms currently offering both propositions. Operations director Helen Ball says doing so allows the business to fully service virtually every customer requirement and profile, with clients recommended an adviser based on their goals, asset value and preferences. She explains: “Restricted propositions typically offer a clear and streamlined client journey and harness technology to deliver a package of products and services.”
Small firms would have a nightmare with dual proposition and I think it would muddy the waters
But while that strategy works in a 1,250-strong adviser network, for smaller firms and one-man bands it may not be an option. Hall says: “I think a dual proposition is really only practical if you’re a large enough company. Small firms would have a regulatory nightmare trying to do both and to separate out that business, and I think it would just muddy the waters and confuse the client.”
Indeed, added workload is one of the main disadvantages firms say they would face in offering two types of advice – two propositions can mean doubling up on due diligence for example – and there is also the danger of turning clients off from advice by confusing them.
Consulting Consortium technical director Phil Deeks also points out that most IFA firms tend to have a fairly homogenous group of customers as they often work in a certain geographic area, or specialise in a particular type of product, so they don’t have the need for various different advice models. In contrast, larger firms with a nationwide reach are likely to have a more disparate customer base which could benefit from the ability to offer different services.
He says: “In the years since RDR we have seen firms move from independent to restricted as they have realised it allows you to define your own proposition more, but we have not seen a rise in firms doing both.
“Firms don’t seem to want to mix the two – I think if you’re restricted you probably don’t see the value in doing extra work required to be independent, and if you’re independent you don’t like the restricted label.”
But that’s not to say this will always be the case. Dual propositions could become more commonplace in the future as Millennials start to reach the point where they need financial advice.
Deeks says: “We may find the next generation of clients want to use a robo-advice service at first when their needs are simple and they want to keep costs down, and then move on to take full advice when their financial planning requirements become more complex. Customers are not demanding that yet but, if they do, the industry may become less binary.”
It may be a model that particularly suits firms where the practicing advisers have different interests or specialisms. New advisers coming through may be more interested in developing technology-led propositions, for example, says Deeks.
But, in the meantime, advisers argue that customers place very little emphasis on whether they are restricted or independent; while these labels may be important to the regulator and within the industry, a client is simply looking for an adviser who can meet their needs.
Lakey says: “I’ve never had anyone question what being a restricted adviser means. I explain what I can provide, and clients are usually happy with that. I’m whole of market so my clients have the benefits of independence in that I’m not tied to certain providers, but I don’t have to look at products I don’t think are relevant.”