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FCA asks for help in explaining indy/restricted advice

The FCA has asked the industry to help come up with ways to explain the difference between independent and restricted advice.

In its post-implementation review of the RDR, published today, the regulator, says it would be interested in hearing from industry stakeholders on how to present information to consumers on the nature of advice services.

One idea is to take forward a proposal from the Smaller Business Practitioner Panel to introduce a “simple label” to explain the scope of a firm’s advice.

The FCA says: “We recognise that, in some areas, the transparency rules are not resulting in improved consumer understanding, in particular consumer understanding of the adviser labels of ‘independent’ and ‘restricted’ appears limited and these rules are unlikely to have their desired effects.

“We are interested in hearing stakeholders’ ideas for better ways to present information to consumers on the nature of advice services.”

Research by Europe Economics, published alongside the review, found that many consumers are confused about the advice charges they are paying and that they do not understand the difference between restricted and independent advice.

Europe Economics says: “The implication of this is consumers are less likely to be able to shop around effectively for an adviser and in doing so drive effective competition between advisers. For example, consumers may not experience a clear choice of advice reflecting efficient cost,i.e. they may not appreciate the (potentially) higher cost of independent advice if they do not understand what this will provide them with.”

It adds: “A lack of appreciation by consumers for the services provided by independent advisers may undermine the incentives of these advisers to improve the quality of their advice, or else increase the attraction of the restricted model to them.”


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There are 38 comments at the moment, we would love to hear your opinion too.

  1. What is it about the word ‘simple’ that gets the regulators juices running so swiftly?

    There is nothing simple about financial services – advice or products – and the sooner this miserable excuse for forward thinking is dropped the better.

    If you want something that is relatively…simple, then why not have,

    a) Independent adviser covering the following areas

    b) Restricted adviser only covering the following areas

  2. Somebody posted something like this on another site earlier. It was genius, pure genius. “How about using Tied, multi tied and independent. Tied and multi tied are company representatives and act as the agent of their company or companies. Independent acts for and on behalf of the client”. Does it really get any easier than this? Will the FCA use something like this to keep it as easy as possible for the client? I honestly don’t think so is the answer to both the questions posed

  3. The problem is the desire for a single word to describe a position of complexity. The only thing that really seems to have changed overtime is the word used to describe that which is not independent (direct sales, tied, multi-tied, restricted)

    I agree with Alan there is nothing simple about financial services in general and financial intermediation in particular, which is why most consumers need competent, professional financial advisers of all types

  4. I hope the FCA is not just asking for our help to explain the currently pointlessly complicated definitions of independent and restricted and is actually asking for our help in rewriting the definitions in a more realistic fashion.

    I doubt it though……………………………..

  5. “FCA asks for help in explaining indy/restricted advice”

    How funny !!!!!

  6. surely independent means access to whole of market, Multi Tied means a prefered panel of companies. Tied one company I think the public can understand this. Its whether the adviser discloses properly that’s the problem? How many people go into their bank assuming they will get impartial advice.

  7. Is this a joke? Can’t they refer to the person who decided the previous system didn’t work?

    Ask most consumers what they think the term “independent” means & they’re likely to say “someone who isn’t tied to a specific company”. When you tell them that also refers to a restricted adviser they look at you like you’ve lost the plot.

  8. Derek Bradley ceo Panacea Adviser 16th December 2014 at 2:24 pm

    There’s a well known joke about a tourist in Ireland who asks one of the locals for directions to Dublin. The Irishman replies: ‘Well sir, if I were you, I wouldn’t start from here’.

    And that in a nutshell is the problem. The FCA has asked the industry to help come up with ways to explain the difference between independent and restricted advice. It may have been better to consult the adviser sector on how to model the differentiation, if one was needed at all, before the RDR journey was started.

  9. Independent: I work for you Mr Client to provide you with solutions which match your attitude to risk.

    Restricted: I work for a 3rd party who decides what solutions I get to offer you?

    How about just aiming to return to polarisation

  10. I just don’t believe it. I really, really can’t credit it! This was their invention, their rules and they can’t explain it.

    Logically therefore there is only one solution – scrap it and go back to where we were – when everyone understood the difference. Independence means you can deal with anyone and everyone. For those that are not independent this isn’t the case. How hard is that?

    At the same time can we please inject some sense. A Private Client Stockbroker is independent. You don’t go to a proctologist if you have a toothache.

  11. This same argument has been raging on for at least 20 years. When will enough be enough when it comes to wasted man hours. Millions have been spent on this and we are still no further forward. Is this just an excuse to keep some jobs available for the boys? It is pathetic that we review the same processes and functions time and again and when everyone is used to it; all change to keep the money trough churning, disgraceful.

  12. Probably more effective to respond to the consultation than post your answers on here – That way when you claim the regulator doesn’t listen you may be in a stronger position.

  13. All the attention on the meaning of ‘independent’ and ‘restricted’ once again misses the point that the main problem is the definition of ‘advise’, particularly the narrow (restricted?) FCA definition which solely relates to product selection whereas most consumers and even advisers use the word to mean ‘financial planning’ in the widest sense.

  14. The FCA seem to want to push simple advice however, they have not determined what is simple advice. They need to provide written specification of simple advice. Every other industry has a rule book or specification

    The advice provided by our firm is complex because the clients have complex issues. How do you make pension drawdown simple? or Discretionary gift trusts? The FCA have suggested a simplified “guidance” regarding pension income, it just won’t work.

    Alan has already mentioned it is not simple. It was never simple however, many parts of the RDR have made the process more complex for the clients. Independent Financial Advice is Independent everything else is either tied or multi-tied.

    Re-inventing the wheel springs to mind….. here we go round and round again.

  15. 1st draft and may require more work to be done

    Independent advice –
    We are an independent adviser , such carry out a review of all the products on the markets (Investment, Pensions and Protection products) assess and advice the one which most suitable to meet your goals and objectives. In some circumstance the list of products will assessed taking into account the profile of our client base and or on an individual bases You will be informed how the selection of products was recommended

    Restricted Adviser –
    We have restricted our panel of products we can advice you on to providers X ,Y Z and A. We will only recommend products from those companies . The selection of these arranged by was by XYZ company of whom we are a network member employee have an commercial relationship with.


    James Clancy Company is a employee partners self employed by XYZ Company and can only sell products of that company .If the company does not have a suitable product .XYZ has selected a panel of providers who will meet your need from the following companies

    Have to admit it is hard .

  16. Yaaawwwn – thoroughly bored now!!! Why don’t they liaise with MAS, they haven’t got much to do these days

  17. Another prime example of over-complication and I’m afraid of the regulators not understanding what (and who) they are regulating.
    If they caught an adviser admitting this he/she wouldn’t be in business for very long!!
    It would be laughable if it wasn’t so sad.

  18. Perhaps it is because we are trying to answer two questions at once. As a consumer I want to know two things. Firstly, is this adviser any good / do they specialise in what I want to advice about? And, secondly, if I do want them to recommend a particular product / provider then are they going to be biased in any way? To answer the first question I want to see qualifications, chartered status and client testimonials, etc. To answer the second question then ‘Independent’ or ‘Restricted’ is actually okay. But to use the ‘Independent’ or ‘Restricted’ labels in isolation really doesn’t help. It just feels like the right answer to the wrong question.

  19. It would be easier to summarise quantum physics in a short paragraph.

    Derek Bradley has articulated the real point. The current definition is fundamentally flawed in that it has no common sense meaning that can be related to by the general public. Indeed, I suspect that the vast majority of advisers and regulators don’t truly undersrand what it means either.

    However, in an attempt to be helpful, how about the following definition:

    “An independent adviser can advise you on any investment but doesn’t have to in order to remain independent. Not all investments are covered by an independent adviser but most packaged ones are though not all. A restricted adviser will not advise you on all packaged products but may advise across an overall greater range of investments than an independent adviser or may advise across much less. The actual advice given by an independent adviser or a restricted adviser that doesn’t involve a product is independent.”

    Niels Bohr once said that if you are not shocked by quantum theory then you haven’t understood it. His statement would appear to have found another application.

  20. E L Wisty (an only twin) 16th December 2014 at 3:19 pm

    You really couldn’t make this fiasco up! As previously commented, clients understood the concept of polarisation, although I accept that may ‘independent’ advisers weren’t really independent.

    The issue at stake is ‘objectivity’ – does the adviser work impartially for me, or is he/she promoting the products and services of a specific organisation(s)?

    There is nothing wrong, in my book, if someone is selling a particular company’s products – unless they are using sophistry to pretend that they are objective, when they are not.

    The irony is that I also understand what the FCA were trying to achieve with ‘restricted’. This objective could be achieved by an ‘Independent (specialist)’ label, where a firm chooses to specialise in a particular service or services.

    We won’t see a return to independent/tied, as that would be too much of a climb down. But, please FCA, please can we have a polarised market again, which uses terms that people understand.

  21. I understand that Hector Sants has just got a job advising regulatory authorities/governments on how to structure their systems – surely the obvious answer is to get Hector in to sort out the muddle…?

  22. Take The High Road 16th December 2014 at 3:45 pm

    Mmmm…..I’ve got a couple of IFA friends who use a SiNGLE centralised DFM…how can they call themselves ‘Independent’?

    …on the other hand, I’ve also got a couple of pals who are termed ‘restricted’ whole of market and use a panel of DFM’s to refer investment business to….they seem much more indie than most so called independents(IFA’s)!!!!!

  23. 1)There will be those clients/customers whose interests can only be served by advisers who are independent, 2) there will be those whose interests will in no way be harmed from an adviser who is acting in a restricted manner, and 3) there will be those who will suffer no detriment by dealing direct, without advice, in purchasing a product..

    But how – in advance – does a client/customer know which is which?

    More importantly is not which, but when – during most lifetimes circumstancesfor any individual can immeasurably change, those changes themselves can alter which of the choices will prove most suitable and effective. 1) or 2) or 3) can be no more a constant than life itself.

    Do we think that any form of semantics or labelling provides THE answer for the client/customer?

    Or are the FCA simply asking the wrong question?

    What matters to clients/customers are outcomes, and for proof of that you need look no further than the research that the FCA asked be conducted – what was that research baeed on – it was based on outcomes. Not surprisingly the outcome of using the current system of semantics led to – confusion. Is anyone really surprised?

    The FCA would be best advised to completely rethink the outcome they wish for clients/customers.

    What is in the best interests of the consumer, not once, not twice, but the outcome that will best serve consumers over the course of their individual lifetimes – and once that is the basis of the question, it is more likely suitable and effective answers will follow.

  24. LIke so much the regulator does, they just don’t seem to grasp that when the industry itself doesn’t understand their musings, then the public at large will stand absolutely no chance. I suppose when one operates in such a technical environment, it’s difficult to see that what Jo Pubic wants and needs, is simplicity.

    To be fair, they’re not alone in this – witness the near total disconnect between the average voter and politicians in this country – cocooned in Pariamentary infighting – frequently with no real life non-political experience – and left wondering why the voting turnout is ever decreasing.

  25. Couldn’t agree more with Garry Heath. And Dermot Brannigan. And John Townsend. And Marty. And I suspect just about every IFA who posts on this matter. What on earth is the FCA’s problem?

  26. It’s not just about the independent/restricted labels, it’s also about making it really clear to clients which applies to you.

    I’ve looked at loads of financial adviser websites recently and found no clue as to whether they’re independent or not. Of course, it will say in their terms of business but that isn’t readily available. Nor is it on the FCA register. Why not?

    I don’t really have a problem with the labels, but why have them if clients can’t see them at outset when they’re deciding who they might like to do business with?

  27. Hey! Hang on. The FCA paid Europe Economics and small fortune (I’ll bet) to produce the report (which only really tells us the bleedin’ obvious – as always) and here we have us mugs helping the FCA out for free. No wonder they feel it is easy to shaft us.

  28. SJP must be laughing their socks off at all this.

  29. The problem with some of the solutions suggested is that using these descriptives most of were never ‘independent’.

    I told one of my clients last week that if she ever had an adviser tell he that he knows about everything and was good at everything then she had just met a liar.

    The financial world is too complex. How many ‘independent’ wealth advisers arrange mortgages?

    How many of them promote and understand the myriad options within the protection world?

    The sooner this abysmal mess is sorted the better it will be for the consumer because although the FCA has a statutory objective to protect and champion the consumer they are doing untold damage by persisting with the current unexplainable, unworkable and totally stupid descriptives.

    As is often said, if we opted to run our business the way the FCA runs its own we would very quickly be insolvent and signing on.

  30. Everyone seems to have overlooked Stan Kirks comment, which for me actually is more of the issue. Advice should be about what to do rather than who it should be with. The exams we have all had to pass at level 4 are ALL about what to do and what to advise, there are NO exams on provider selection or what is or is not adequate due diligence.
    Keydata was all about due diligence and yet the person who wrote the glowing report, Dr Debbie Harrison gets a position on the FSCP while advisers get shafted by the FSCS.

  31. Martin Wheatley has a thing about behavioural economics.

    If say Asda, Tesco, Sainsburys and Morrisons were regulated by the FCA one supposes they would be permitted to operate under the label “Independent”, whilst Aldi’s and Lidl, and every other small shop would be deemed “Restricted”?

    Do you believe, as the FCA appear to do, that it would alter consumer behaviour in a fundamental way, indeed in any way at all?

  32. @Take the high road
    That’s because being independent has nothing to do with recommending a DFM. If a solicitor recommends an IFA does he have to use several IFAs to remain ‘independent’? Which goes back to the point that not many advisers truly understand what the current definition is and no clients do. Furthermore, the IFAs posting here generally don’t think about or understand the impact on others such as wealth managers and stockbrokers (Harry excepted).

    To be independent you have to advise across the full range of packaged retail investment products (PRIPS). That doesn’t include pension transfers, IHT planning, long term care products. You can call yourself independent without advising on these but are you really? The definition also doesn’t include non-packaged products such as equities, government and corporate bonds, and other direct investments. Wealth managers and stockbrokers will do the latter when most IFAs don’t. On that basis can IFAs really claim to be independent? Can IFAs really suggest that wealth managers and stockbrokers are restricted? It’s a nonsense.

    The only true measure of wether you are independent is if you act for the client and aren’t tied or beholden to using a particular provider’s products.

  33. You couldn’t make this up!

    They introduce the concept then admit that they don’t know how to explain the difference to the public!

  34. So a consumer wakes up one morning and decides, “I want to get professional advice on topic x”. When they start the journey of finding a company/individual that can help them, what should they be able to understand quickly and succinctly? Costs aside, I would suggest the following:

    1. What areas of advice can that company help me with? e.g. a mortgage, short and long term savings/investments, IHT planning, pension reviews/consolidation, protecting my dependants, releasing equity from my home, care fees planning, pre-retirement planning, at retirement planning, my portfolio of individual equities and bonds, saving tax etc i.e. list advice areas/topics.
    2. When the advice firm gives product/service recommendations in that area(s), are they restricted to one company, tied to a few companies, able to recommend any company?
    3. Will they consider all Retail Investment Products when they advise me? If not, which classes of product will they immediately exclude? Give a list (presumably there is nothing to stop the FCA generically labelling all existing products and those that are then brought to market)
    4. Is the advice firm able to review my existing arrangements and provide recommendations to retain but tweak those existing contracts if it is in my best interests to do so? Or are they biased because will they will get paid more if they advise me to cancel/transfer that existing arrangement to replace it with a new one provided by their tied/multi-tied/in-house offering?

    How you present/describe this all is another question, but it cannot be described in one word such as “restricted” or “independent”. At the moment the industry is asked to describe the nature of any restriction. This gives companies leeway to blur the lines and enables marketing departments to twist the description of the services into something that might appear be more palatable. I don’t see how it would not be possible to standardise the above 4 points and get it onto one sheet of A4.

  35. @james -stop making so much sense. You’ll give someone at the FCA a headache!

  36. @James Hurdman
    I agree with most of what you’re saying. What I don’t agree with is that any client will be thinking ‘product’ in this context (your point 3). They will be thinking ‘advice’. Investment can mean direct investments, not just products. Other areas you mention can mean simple planning, also without involving a product.

    If you simply said that to be independent you had to act as the legal agent of the client then that’s simple, understandable and would probably tally with what a client would describe. An adviser that is tied or multi-tied would then be restricted regardless of how they set it up or described it and that would fit comfortably with what a client would view as restricted too.

  37. Yes, sorry Mr Castle, I apologise.

    @ Grey Area – you are correct, a client thinks advice area not product and that is why I suggested point 1 first as this is what a client will be seeking to establish in the first instance. Also, if the advice given doesn’t involve products then points 2, 3 and 4 become immaterial. In relation to direct investments, again you are (sort of) correct, but the issue is that the current definition of independence/restricted places emphasis on what PRIPs are advised on. Unpackaged direct investments are excluded. That is also why I listed non packaged investments in the “advice areas” of point 1, not point 3, even though they are a mechanism to invest rather than an advice area per se.

  38. I think it’s quite simple really. Allow IFA’s to specialise if they want to. Allow IFA’s to refer internally and externally to those specialists. Any advice given WOM.

    Everyone else is restricted/tied to some sort of panel and they have to refer if they do not offer the relevant product.

    All advisers should be able to offer simplified products.

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