One would have to have been out of the country or taken to living under a rock to have missed the furore over the retail distribution review discussion paper or RDR as it is known among acronym lovers. Before I continue, I have to ask, what is it with financial services and acronyms? There are now so many I am getting dizzy.
A considerable number of column inches have already been devoted to the content of the discussion paper, sometimes by people whom I suspect have not actually read it, and opinions appear to be split on certain aspects.
However, in one area, there does appear to be a consensus among the IFA community on the use of the adjective independent.
While I am aware that the questions posed about the use of the term are simply questions for discussion and open to debate, I am somewhat concerned that questions were raised in the first place. It makes me ponder the group members’ grasp of the English language and would like to suggest a look in the dictionary to check on the definition, just in case.
Quoting directly from my Collins pocket dictionary that sits within easy reach on my desk, it reads:
Independent: adj 1 free from the control or influence of others, 2 separate. 3 financially self-reliant, 4 capable of acting for oneself or on one’s own.
I would particularly like to draw their attention to the first definition, which is the one most consumers would use in the context of financial advisers, according to research commissioned by Unbiased. co.uk. They believe, quite rightly, that advisers are able to make their product recommendations (if financial products are required) based on the whole market.
On the subject of products, product recommendations are, more often than not, part of the advice process but it does not necessarily follow that the product tail is wagging the advice dog, as some would have us believe.
My own feeling on why this might be is that far more weight is given to negative news and views than positive ones. It is highly unlikely that you will ever read the headline, Two million punters delighted with the advice they receive from their IFA, but as soon as something goes wrong, the fingers start pointing and the advice and adviser come under suspicion despite the fact that the advice given may have been very good and wholly appropriate at the time it was given. That the adviser would have required a crystal ball to foresee what happened to markets subsequently is by the by.
Coming back to the matter of independence, while it might be argued that some IFAs may be influenced by financial incentives from providers, they are still free to consider the whole market and their advice should be based on that. That measures are already in place, meaning that bias for a particular provider can and should be called into question, should also not be overlooked. It is called compliance.
That said, I have no objec-tion to introducing further measures to bring more clarity to charging so-called factory gate pricing or cust-omer agreed remuneration or CAR, as preferred by the RDR impact of incentives group.
I have never understood many advisers’ reluctance to be up front about the cost of advice. Yes, some clients may baulk at the true cost but in my experience those that do tend to dislike paying for anything and frankly I would rather tell them to go elsewhere than accept their business.
If it is believed that changes to adviser remuneration and the disclosure of remuneration are required, so be it, but it does not follow that you should let any anyone use the term independent because they happen to operate the appropriate remuneration structure.
I very much hope that the RDR panel will listen to reason and retain the term independent solely for the use of whole of market advisers. If they don’t, there could be trouble.
Donna Bradshaw is a financial planning strategist at IFG Group