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Cicutti: Is independent title worth saving?

What’s in a name? For as long as I have covered the financial services industry as a journalist, one of the proudest boasts of many of its participants has been that they are independent financial advisers as opposed to tied agents or life insurance sales people.

IFAs who have spoken to me over the years have regularly talked of a career progression that started off with working for a life company before moving onwards and upwards to the sunny uplands of genuine independence.

For a long time, IFA status was strongly defended by most advisers, not just in terms of their support for bodies that promoted this ideal to consumers, such as IFA Promotion, but also through trade associations campaigning to retain the term as a distinct advice category, enshrining a powerful ethos of being unbiased and “better” than any alternatives on the market.

Yet in the past two or three years, this determination to keep the initials “IFA” shining brightly appears gradually to have evaporated.

As we move into the final 12 months before the extinction of the current rules on what constitutes an IFA, it is worth reflecting on whether the IFA tag itself is something worth saving or if it should be ditched.

A few months ago, we saw Aifa ditching its requirement that in order to be allowed into its organisation, prospective members need to be independent. Under the

retence of refusing to accept the FSA’s decision to “move the goalposts”, the trade body moved its own so widely that just about anyone can join as long as they know how to spell, if not necessarily pronounce, the word C.O.M.M.I.S.S.I.O.N. From that side, then, independence is definitely dead and buried.

Perhaps more surprising is the attack on the term coming from the opposite direction.

In the last issue of Money Marketing before the new year, my friend and former colleague Robert Reid wrote an interesting piece in which he admitted that his own business, Syndaxi Chartered Financial Planning, has not used the term IFA for some time.

Rob wrote: “As a firm, we dropped the IFA moniker a while ago as it did not align with what we are about, in that we only do what we are competent to do. Before you all rush to blog, think of all the firms near you displaying the Unbiased symbol that offer nowhere near a holistic proposition.

“How happy would you be for potential clients to think of your firm in the same vein? I once said the problem with with-profits was it was a generic term for a non-generic range of products. The term IFA shares the same problem and that is why chartered financial planning firms have the edge.”

In essence, Rob is arguing two distinct – and potentially devastating – points at the same time. One is that many of those who use the term independent do not justify it in terms of their practice, which, deep down, most of us have known for a long time.

The second is that independence of product advice is not all it is cracked up to me. As Rob puts it: “I once said that the perceived advantages of IFAs could come back to haunt them, for example, the ability to research the whole market. This is just not practical every time you take on a new client and yet it is often cited as a core advantage.”

Rob prefers the term “financial planner” with regard to his work and it is perhaps no surprise, given his one-time role at Sofa and past links with the CII, that the use of the word “chartered” also figures in his column. But even if the Sofa/CII link were not there, many other IFAs I respect have also told me in recent years that they too also much prefer to use the term financial planning for what they do rather than independent advice.

If this is true, then it begs two questions. The first is that Gill Cardy’s valiant attempts to create an IFA-only trade body is doomed to failure because no one will care enough about being independent to bother joining an organisation that upholds long since dead values.

The second is that, inadvertently, what the RDR may be on the verge of heralding is the end of an IFA sector that no longer was concerned enough about the distinction between its role and a salesperson’s to stick with independence.

What seems to be happening is that no one cares about a badge they once wore with pride and it could well fall into disuse as a result in the next year or two unless, of course, some readers of this column decide that the consequence of abandoning the term independent financial advice will mean far more confusion for consumers.

If so, there are barely 360 days left to come up with a plan – and the clock is ticking.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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Comments

There are 22 comments at the moment, we would love to hear your opinion too.

  1. Our firm abandoned the IFA title in 2004 because it was embarrassing. Very few people have any respect for ‘financial advisers’, independent or otherwise. We are generally viewed as less professional than estate agents. It used to worry me but hasn’t for a few years now. So as far as our team is concerned, we couldn’t care less about the ‘independent’ tag and view the future simply as a challenge to avoid the endless number of bear traps, whilst maintaining profitability. Folks buy folks and judge you on what you do, year on year, and the results you produce. Titles don’t mean very much in the real world.

  2. For those IFAs who view themselves as purely product “brokers” then being independent is of importance, I guess. Of course, stakeholder has seen pension providers all offer virtually the same plans, same external fund managers etc. I wouldn’t want to be in a business who proposition is built around “we can pick the best product because we’re indpendent” – and certainly not post-RDR, when the last smoke ‘n’ mirrors product range (life assurance investment bonds) will all be factory price modelled (eg no more “110% allocation, 7% commission and no charge to you Mr Client.”)

    For those who view themselves as being financial planners/advisers first and brokers second – and whose advice may or may NOT include a product as a solution – then the independent title has been irrelevant for a long time.

    Which is my only criticism of this article – it’s way out of date!

  3. The FSA seems to have a rather different definition of “independent” to the rest of the English speaking world. So I had a look for some alternatives.

    One definition of independent is “free”. That is not very helpful – FOS will uphold complaints that it is not clear that it meant as in speech not beer.

    thesaurus.com gives a number of alternatives to independent including self-governing and self-ruling – so maybe the FSA does not like that.

    It also has uncontrolled and freewheeling – which again might not be the best way to market your business.

    I quite like nonpartisan, though.

  4. The development of platforms and the increasing acceptance of the need to contract out investment management services means that the independent title is far less important than it once was.

    Our usual investment recommendation is now likely to be one of two companies, one being a wrap and the other a DFM. All the funds that it was once necessary to be independent to recommend are available within this structure and usually at a lower cost to the client.

    If we tied to these two firms with a review once a year I doubt our advice would alter significantly from what it is today.

    After all, who wants to pay us to research the entire market for each and every investment? The result might show up a platform that is fractionally better than the one we use BUT the cost of getting there would far outweigh the benefit.

  5. The regulators don’t think it is worth saving, in fact they disposed of it in Jauary 2005 in a huff.

  6. Why would you bother trying to save a title that is firstly synonymous with recommending products (albeit with more choice than the banks) when the top end of the IFA sector are now Chartered Financial Planners (and providing financial planning advice) and secondly the FSA’s post RDR definition has made it far too costly to maintain the ‘Independent’ definition for the majority of former IFAs (if people disagree I suggest they take another read of the FSA’s detailed papers).

    The logical progression will be for those clients who just want independent product research to use the web and for those who want profession financial planning advice to use a Chartered Financial Planner

    The IFA title died when de-polarisation came in, we can’t expect the FSA to offer anything that will help clients’ understanding of the services we provide – we will have to do this ourselves and the Chartered / Certified Financial Planner title is the way forward

  7. Perhaps the terminology isn’t that important to firms with established client bases, as we know that new clients arrive through existing ones, and the company or personal title IFA may not mean that much anymore, as long as the clients know that the whole “wealth management” or “holistic” approach is being done properly.-God knows the FSA are keeping the waters muddy with the Money Advice Service which doesnt purport to provide advice- rather in the same way that America and the UK are two countries seperated by the same language, Canary Wharf and the rest of the world have the same differences.I think if you havent sorted 3 things out by 31st Dec 2012 then you should really shut up and go home- those three things are – Your client proposition, Your client bank, and of course the level of exams you need in order to trade. The rest of the bear traps can be avoided. Oh and by the way- be prepared for the goalposts to move in 2 or 3 years time again.

  8. Scott Taylor-Barr 5th January 2012 at 10:56 am

    It has long struck me as an oddity of the financial services community that the “quality” of advice is measured by how many products you have access to.
    Good advice can come from a tied agent as much as bad advice can come from an IFA.
    It is the knowledge and experiance of the adviser that makes for high quality advce – not the number of products he/she has to choose from.

  9. Having been proud to be an IFA since I became one under FIMBRA designation 21 yrs ago, I lament the current trend to denigrate the title and dilute what an IFA has for decades represented.

    “Independent Financial Advice providing advice, products and services which meet the needs of clients and the person or firm you are dealing with can be trusted to provide these by acting as the agent of the client in any transaction.”

    Most IFAs are NOT Financial Planners they earn their income from transactions effected on behalf of a client who comes to them for advice, products and services they can trust.

    RDR is an undiscovered country, but judging by the current terminal decline in numbers of IFAs and of course banking advisers who are being made redundant in their thousands (RBS?) what is the poor consumer to make of it all.

    They are the real losers in this debacle and the cliff edge mentality of the regulator only exacerbates the problems of the industry, it doesn’t address the fundamental needs of the consumer.

  10. Again, an article that denigrates advisers and perpetuates the convenient myth that most of us are ‘product pushers’.

    In my business, and I cannot believe I am any different to the majority, I provide a mix of holistic advice, take client orders and arrange sales of products that they need.

    As an IFA I always explain my independence from the product providers, which is true. And, before some smaet aleck argues over the merits of commission-based selling, I also use NS&I and various bank/b.soc accounts where no commission payment is made to me.

    It is clear that the IFA moniker is doomed. However this is due to the regulator. The ending of polarisation and now the RDR experiment has created such confusion amongst consumers and advisers that nobody knows who is doing what.

    This view was solidified when the FSA told me that they couldn’t distinguish between tied and non-tied advisers due to some firms offering both advice routes.

  11. A lot of very good points being made here, especially around the status or relevance of the IFA title.

    Remember that it was introduced when regulation and polarisation came into force in 1988, and really therefore became redundent at the point of de-polarisation.

    Prior to 1988 ‘financial advice’ was provided by a) Brokers, who might, or might not, consider the whole of the market, or by Life Company representatives or salesmen who might also hold agencies with other companies! Satisfactory? Not at all.

    Most ‘Brokers’ would have been happy to continue to trade as such, but were prevented from doing so by the IBRC, who would only allow the term tobe used by their members, and hence, we became IFAs.

    In reality, as has been said, the majority of us continued to be product (Investment, Pensions and Savings) brokers, ostensibly whole of market, but in reality imposing our own restrictions, mostly for reasons of practicality and awareness.

    The emergence of Financial Planners, catering for the top end of the market, that is, those that need it, has really created another advice sector, but one which is largely irrelevant to the majority of clients that I and I believe most of us deal with.

    This is not about commission vs fees, it really isn’t, or at least it shouldn’t be. It is though for me, about continuing to link my remuneration to the arrangements (products, platform assets or whatever) that the client wants me to advise/manage/look afer etc, on their behalf, and the RDR structure allows me to do that with no barriers or difficulty whatever. So where’s the beef?

    If the client need is for a non packaged structure, advice or comment of some sort, not linked to a product or asset, I charge a fee. How difficult is that?

    The removal of complex and opaque charging structures, even though we may have (or almost certainly will have) used them in the past, and the development of clear and open wrap and platform structures should be welcomed by all of us.

    There is no reason whatever why any adviser, with a current client bank, need fear RDR. Sure, you might have to change some of what you do or how you do it, but so what?

    I believe that many advisers are like me, dealing with clients somewhere down the food chain,seeing our businesses continuing much as before, but with a client charge replacing a commission. Does that make us ‘product pushers? If you like, but why would that have to be a bad thing? We’ve all suffered worse insults.

    As for title, call yourself what you like, as others have said, you’re judged on what you provide for your clients, not what you call yourself, but I would like to see the re-introduction of the ‘Broker’ title in some form.

  12. Martyn Sinclair 5th January 2012 at 1:52 pm

    I currently work for an Independant Financial Advisor who are working towards gaining Chartered status. As soon as they do, I imagine the IFA element will go.

    Since when do you see other “Independant” professionals??

    Its reporters like Nick that have kept the very Passe term IFA alive for all these years!!!

  13. Peter Davies @ Create Wealth 5th January 2012 at 1:54 pm

    Forgive me if I am wrong, but the public need to be made aware if they are dealing with a firm who can only recommend products and services from a limited range of providers or from the whole of the market. A potential new client for example must be able to quickly esstablish the firm’s status and scope of their advice. People do recognise the blue IFAP logo and many know what an IFA is. The FSA have come up with nothing better; their ideas change like the wind. Lets keep it simple and not lose touch of the fact that there is a huge difference between tied and whole of market advice.

  14. I think the term IFA has been tarnished and it is undoubtedly deserved in some quarters.Most certainly it is the case that taking advice from an IFA doesn’t necessarily lead to a quality outcome for a client.

    For me however the new regulatory terms of ‘restricted’ and ‘independent’ are just going to be confusing for clients in the same way that as was depolarisation. Throw MAS with its own take on ‘independent’ into the ring and hey, confusion especially in the mass markets will reign.

    Whilst personally ambivalent as to the demise of the term IFA, at least clients generally understand what it means. That the FSA doesn’t seem to is a little worrying.

    What does worry me is that in having the two new definitions, there is no clarity as for whom a firm/adviser/planner is acting and I’m really not confident that some current tied/multi-tied operations won’t seek to exploit this lack of clarity.

    let’s face it, they’re already doing it!

  15. Well it does not look like it from the regulators perspective.
    We are IFA but the general public seem to understand the title “Broker” better!
    The “price” of everything and not the “value” is
    being driven by the internet.

  16. All part of the dumbing down in society today.

    Lets’ call Accountants Book keepers or Tax Calculators.

    Lets call Solicitors – Lawyers

    Lets call Doctors – Medical practitioners

    Lets call Jounalists – Hacks

    I liked the term that was used by Lord Grantham in the last seies of Downtown Abbey – My Man of Business.

    Afterall is said and done an Independent Financial Adviser is someone who Advises Independently on Financial Matters. Wow what could be more simple than that.

  17. What I would like to know is how the word ‘independent’ can be used when most of the IFA’s are using computers systems run by one company rather than doing the research themselves. This is not in my view independent, but the regulator for some very strange reason prefers this. The word indepenent is very misleading to the general public.

  18. It is somewhat strange that the term independent should have such different connotations in Australia and the UK. In Australia the major financial institutions have a stranglehold on financial advice. The various reports suggest that anything up to 90% of advisers are owned, partly owned for use products and services from the four major banks and their three or four substantive service and product suppliers. It is clear that language and words are only relevant within their local context. Here advisers are unable to use the term independent, the regulator has determined the definition to exclude any adviser who receives any income by commission. This precludes all but the most recent advisory businesses as until the last few years it was almost impossible to get fund managers and life companies to rebate commissions in their entirety. This left many advisers offsetting the commission paid against the fees charged to clients. This accounting shortcut has left most advisers unable to use the term independent. How ironic then to read of their English counterparts choosing not to use the term independent. For my part the notion of independence is particularly powerful. It means that we are able to speak and act without the unreasonable influence of a third party. Of course we still have our biases, for instance; I am particularly fond and like to do business with firms where the owner of the business can see the value in what we do and is prepared to pay for it, as if out of their own pocket.

  19. I haven’t used the term IFA for many years now, and indeed I visibly wince when I’m called an IFA or a financial adviser as it smacks of salesperson….. So I prefer to call myself a financial planner and since qualifying, a chartered financial planner. As clients and potential clients seem more comfortable with that title as it indicates experience and professionalism rather than a hark back to the 80’s when we had people going from supermarket shelf stacker to financial adviser seemingly overnight.

    My approach with clients is that I provide them with advice, in the same way an accountant or solicitor would, and charge in the same way, at similar rates to reflect the comparable experience and qualifications. Sometimes, a product may be appropriate which will require an initial cost to research and establish and then an ongoing cost if it requires ongoing servicing.

    I don’t see why the fact that I’m independent or not should make a difference, especially post RDR when apparently everything will cost the same, have the same features and fund links etc in any case…….. or maybe it won’t be quite as simple as that after all once the big providers fully take on board the loss of market share they may suffer.

  20. To my way of thinking the funny thing about RDR is that those who really want to be “Independent” will no longer be required to be regulated at all.

    Generic advice paid for by the client who then accepts or rejects that advice may become quite common. No more need for agency or submitting applications. The removal of commission and free market competition should finally allow for true fee based advice rather than the current pretend versions. The adviser will advise, the client will impliment or not as they see fit and the provider will manage the product or investment. No more cozy provider/platform/adviser relationships. Finally the possibilty of Independence.

  21. We didn’t coin the term. It is a regulatory term, first used in 1986 legislation. You could take the view that it is the FSA who are responsible for its maintenance and not us.
    The FSA don’t really clearly know what activities are regulated and what aren’t. A great deal of their regulations are based on product retailing (they don’t know what a product is), whilst their work with IFAs seems to centre on financial planning advice (not a regulated activity). The regulations need to be torn up and a new (short and rational) rulebook drawn up which is consistent and completely rational. Some hope

  22. There is a world of difference between not USING Independent or IFA in your company name or in your marketing or client facing material (except to the extent required by the initial disclosure documentation), and not BEING Independent and electing to follow a Restricted advice model.
    You cannot hold yourself out to be Independent if you’re not, but where is the law that forces you to add Independent to your title or marketing material if you don’t want to??

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