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Better Business: Problems with restricted and independent definitions

The current definitions of independent and restricted advice do no favours for advisers or clients


The term restricted needs to go, and maybe it is time to review the relevance of the term independent as well. In a world where an adviser’s value is in the service they offer and the financial planning they provide, the focus should be on providing a structure that can best deliver this.

Over the last few years we have seen many advisers drop the word “independent” from their titles in favour of wealth managers, financial planners and life planners. Much of the market wants to operate as it always has done, but does not want to be referred to as restricted. However, the title and the uncertainty of what constitutes restricted is acting as a barrier.

There is a danger with the current definitions that:

  • firms operate inappropriately   under the title of independence and get fined
  • all clients get charged a premium for a status that is determined by an ability to advise on products they will never want or need
  • a few clients have to pay a highly inflated price for that extra expertise, which may be fair but of questionable value to them.

It would be a big change to lose the title of independence from the market. But, for a long time, clients have had a mixed understanding of what this actually means. 

The main difference is that the scope of products an independent adviser should be competent and able to advise on has extended from where it was to include all “retail investment products”.

The questions a firm should therefore ask itself are:

  • which of these additional products are appropriate to the segments of my client bank?
  • how much time and cost is incurred in attaining qualifications and undertaking the research for those clients to whom these products are relevant?

How will this extra cost be met?

A firm needs to decide whether it feels it is fair to add this charge to all for a technical competence which will never benefit the majority.


Esoteric and unregulated products carry sufficiently high levels of risk to cause the regulator to urge advisers to proceed with great caution when evaluating their suitability for clients.

Most firms will never have advised on these products and are unlikely to in the future, as nearly all their clients have no need for them, so these contracts may be regarded as “not relevant” to their clients, which means independent status is still achievable.

They would, however, still need to maintain a level of competence to demonstrate an up-to-date awareness of those contracts and others arriving on the market. This would be at a cost, which still needs to be factored into pricing levels.


This applies to anyone or business that does not maintain competence; the ability and willingness to advise on the full range of regulated and unregulated investment products.

Where a firm or adviser chooses to limit the scope of products they are able to advise on then they have to explain up front in what way their advice is restricted.

So who is independent?

The majority of advisers who continue to do what they have always done in line with the old rules are by default “restricted” advisers but most haven’t declared this.

Single platform strategy – any impact on independent status?

The FCA has said advisers can use just one platform post-RDR and still be classed as independent if they have a homogenous client base. However, advisers with a diverse range of clients will need to use more than one platform if they are to avoid being classed as restricted.

The clear message here is that independence does not depend on the number of platforms employed, but on the ability to cater for the legitimate and comprehensive needs of a client bank.

The risk of independent advice

If the current definition remains, perhaps there should be a health warning: “While independent advice covers the widest scope of products, it carries a greater risk of mistakes being made and additional expense for its provision.”

Simon Olive is the managing director of 12th Man Consulting. This is an extract from the Springboard Series which can be found at


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