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Lucian Camp: Why I think indy/restricted distinction will disappear

Lucian Camp, founder of Lucian Camp Consulting, says the implementation of the RDR will render the independent/ restricted advice distinction meaningless and that the champions of independence are driven largely by emotion

Lucian Camp

Sticking my neck out – but I suspect not very far – I hereby make this prediction: within five years of the implementation of the retail distribution review, the distinction between independent and restricted advice will have disappeared.

If you listen to the emotions expressed on the subject today, that may sound unlikely. Many of the champions of independent advice have loud voices, and what they are saying is that remaining independent is an ‘over my dead body’ issue for them. Some say they would rather leave the industry altogether than give up their independent status.

In business, as in the rest of life, we should never underestimate the power of emotion. But at the same time, we should not be blinded by it either. What are the life or death principles that make such an important, career-defining difference?

Remember that after the RDR many of the distinctions between independent and restricted advice will not actually be distinctions at all.


First – and, amazingly, still not fully understood by all advisers – there will be no difference at all in the rules on remuneration. Adviser charging will work in exactly the same way for independent and restricted advisers.

That means the end of commission for new business. The principles are that clients pay for the advice and know exactly how much they are paying.

That also means there will be no overall or general difference in cost between the two. Advisers of both species can charge their clients as much or as little as they see fit, although some suspect that independent advisers, needing to met the cost of more complex processes, will need to charge more to make the same amount of profit.

Professional standards

The second key similarity will be the necessary professional standards. After the RDR, there will be no difference at all in the minimum qualifications required to give independent or restricted advice.

Investor protection

The third is statutory investor protection. Again, there will be no difference at all here: like it or hate it, and an awful lot of good advisers from bitter and expensive experience have reason to hate it, the Financial Services Compensation Scheme will offer the same protection to clients of independent and restricted advisers alike.

Ongoing service

The fourth is ongoing service. Advisers are under no obligation to provide ongoing service but if they do not then they cannot charge any ongoing fees. If any adviser, independent or restricted, intends to charge an ongoing service fee, it will be necessary to demonstrate what ongoing service is being provided for it. And rightly so. Recent angry expostulation from IFAs accused of hiding the existence of unmerited trail commission from their clients seems to fall into the protesting too much category.

Packaged products

Finally, it is worth remembering the RDR applies only to what the FSA calls packaged investment products. In other areas, notably protection but also mortgages, general insurance and so on, the RDR will make no difference at all and advisers are entirely at liberty to go on taking as much commission as they want on whatever products they choose to recommend.

Altogether, these five points of similarity add up to the reason why I do not think the independent/restricted distinction will last very long.

Words and meaning

So what are those hugely emotion-generating points of difference that make the opposite case?

For reasons I find hard to understand, the FSA has decided to use the word restricted in two very different senses – and also, by the way, to use the word independent in a way that will make very little sense to anybody.

In its first sense, the FSA uses the word restricted to mean what we would more usually describe as specialist. If advisers want to focus on particular kinds of investment – on pensions, say, or on passively managed funds – they will by definition be restricted. In its second sense, it means generalist but not considering the whole range of retail investment product providers on the market.

By contrast, in post-RDR speak, independent does not have anything at all to do with the concept of independence as people understand the word. What it means now is comprehensive. You can well be owned by a bank, an insurance company or anyone else for that matter, but provided you consider every packaged product provider and type on the market before you give a recommendation then you are independent.

Thinking about all this, and starting with the first sense of the word restricted, I can see a clear distinction between a specialist and a generalist. The idea that one adviser concentrates exclusively on pensions, while another is a generalist who can advise anyone on any kind of investment, is a meaningful one.


As a result, it is probably helpful to insist on words being used to clarify the distinction, although I do not think anyone in their right mind would use the words independent and restricted. I would say that generalist and specialist do the job much more comprehensibly.

But it is the second sense of the word that causes problems. Does the failure of restricted advisers to consider products from every provider on the market represent a fundamental difference in approach that requires the existence of two different adviser species, with different words used to describe them?

I suppose that at the two far extremes, it does. Imagine on the one hand an adviser who, having done the factfind and ATR questionnaire, scrolls through every product on the market considering each one in detail before venturing an opinion. On the other hand, an adviser working with a single provider only has one UK growth ISA to recommend. At these extremes, it seems there is a fundamental difference.

But, of course, it is rarely like that any more. In a world of platforms and open architecture, few restricted advisers really have access to a single fund in a category. And I am sure there is not a single independent adviser still flicking through an old-style Rolodex to pick out the best product type, and product provider, to meet each individual client’s needs.

With at least 10,000 cards needed in the index, the idea is ludicrous. Increasingly, independent advisers either work from panels of products and providers, ideally selected by substantial, well resourced and expert research departments – but in small firms often selected on a much less rigorous basis – or turn to third parties, notably investment platforms.

And the funny thing is that, more often than not, advisers who will adopt restricted status do just the same – and in some of the bigger and better-resourced firms, they will do it very well indeed.

There will undoubtedly be restricted firms that will take the selection of investments and investment managers as seriously as the very best independent firms, running a centralised process to maintain a range that includes dozens of managers and scores of funds.

Question of choice

I am yet to find any die in a ditch principle that demands the retention of independent status. Where else can we look?

There is the question of tax wrappers. Will the clients of restricted advisers suffer from a lack of choice? Increasingly, it is becoming clear that tax wrappers are well on their way to complete commoditisation. To say clients suffer from a lack of choice of wrappers is rapidly becoming a bit like saying that Sainsbury’s or Tesco shoppers lack a choice of carrier bag designs: it may be true but why does it matter?

Then there is the question of different product types, or structures. Will restricted advisers be as willing as their independent brethren to recommend exchange-traded funds, investment trusts or those scary unregulated collective investment schemes?

The first answer is that there is no reason why not. In the world of adviser charging there is nothing to be gained by ignoring particular product types and, if a product type is generally effective and well regarded, potentially a great deal to lose at least in terms of reputation.

I have a second answer – but it is one that we will be able to test until we have travelled down the post-RDR road for a few years and have some real experience in our rear-view mirrors. My suspicion is that when we look at real clients’ real portfolios in, say, five years’ time, the differences between them will have little to do with whether their advisers have been independent or restricted and very much more to do with whether they have been working in big or small firms.

Big firms, both independent and restricted, will generally have the resources to take a broad – even comprehensive – view of the investment market. Small firms, especially very small firms, both independent and restricted, will tend to stick with established shortlists of tried and tested funds.

Continuum of advice

I do recognise the difference between the very narrowest restricted adviser – almost certainly to be found in a bank – and the most genuinely comprehensive independent adviser benefiting from a big, well resourced research department.

But in between these two extremes it seems there is going to be a seamless continuum of advice offerings, with the best so-called restricted advisers comparing more than adequately with any independents, and the worst independents having no advantage at all over the restricteds.

It is this impossibility of finding any clear place to draw the line which, I believe, is the reason why the distinction between independent and restricted advice is unsustainable and, in time, will fade away completely.

In saying this, I find myself in slightly unlikely agreement with those two hothouses of radical opinion – the Solicitors Regulation Authority and the Institute of Chartered Accountants in England and Wales – both of which have recently published proposals that, for the first time, would allow their members to refer clients to restricted as well as independent advisers.

Already, I am hearing a growing number of IFAs freely admitting they intend to maintain independent status simply because they themselves are emotionally committed to the word. Emotions, as I said, are powerful things – but I wonder how long they will be able to sustain such a senseless shape to the financial advice market.

Advisers awaiting outcome to SRA consultation on referrals
Ian Muirhead, managing director, Sifa

Many IFAs remain undecided as to whether to opt for restricted status under the FSA’s new classification, having taken the view that the terminology will be unintelligible to consumers, and the deciding factor may well be the question of whether becoming restricted would disqualify them from working with solicitors.

The SRA’s Code of Conduct states that if solicitors’ clients require financial advice, they must be referred only to an independent intermediary. This term does not appear in the FSA’s vocabulary and, consequently, the code needs to be changed. However, making the change is not straightforward because the FSA has invented a contrived definition of independence that no longer accords with the commonly accepted meaning of being free from third-party influence.

Prominent proponents of the multi-tied sales proposition have taken the opportunity to suggest to the SRA the easiest solution would be to abandon the commitment to independence and permit solicitors to refer clients to all and sundry financial advisers.

This would also accord with the principles-based regulation to which solicitors are now subject, focusing on objectives rather than hard and fast rules.

The consultation posits three options: to maintain the prohibition against solicitors referring other than to independent financial advisers and to overlook the conflicting terminology; to abandon the prohibition; or to abandon the prohibition but require solicitors to consult with clients before making referrals to ensure the proposed referral would be in clients’ best interests.

One would like to think that independence in its true sense, being a core principle of the legal profession based on the avoidance of conflicts of interest, would be the default option.

However, the Legal Services Act has ushered in a new permissive era for the profession in which the old shibboleths are taking second place to commercial interests, and the regulators seem blind to or unaware of the gulf that exists between new model financial advisers and product salespeople.

If the vote goes against independence, it is likely to be the solicitors’ profession that incurs the greatest damage. Solicitors’ reputations will suffer from involvement with the less scrupulous elements in the industry and the Solicitors Compensation Fund will be saddled with similar levels of claims to those afflicting the FSCS. It is even possible to envisage product providers buying solicitors’ practices as sales outlets.

For IFAs, the decision as to which way to jump may depend on the vote of solicitors whose understanding of the financial industry is in most cases limited.

The saving grace is that, regardless of the way the vote goes, there will always be a major group of advisers who are independent in the true sense of the word, no matter how the FSA classifies them, and whose empathy with solicitors’ professional ethos will give them primacy in the professional connections market.

Decision time on independence
Gill Cardy, managing director, IFA Centre

It seems somewhat “behind the curve” for the SRA to only now consult on how to respond to the new regulatory environment. Perhaps they thought it would not happen and perhaps they only recently realised that they must review their policy.

Leaving consultation so late means solicitors have less time to understand the changes and the new business models and less time to do due diligence on the various emerging business models.

It’s my view that this consultation is triggered not by referrals to IFAs but to discretionary investment managers. With RDR implementation they too will be subject to the same regulatory framework with which IFAs are very familiar. And they too must decide if they are restricted or independent.

Solicitors able to refer clients to restricted advisers will need first to understand what the nature of the adviser’s restriction is.

Are they restricted because they represent St James’s Place or because they only do investment management or because they have a limited panel of in house funds or because they have decided to use only one platform to the exclusion of all others? Then the solicitor will have to understand the implications of this information and determine if it is relevant to the client. But is the solicitor in referring their client to a firm which does not advise on pensions, in effect advising the client that pensions are not important? And is the solicitor competent or, more importantly, authorised to make that kind of judgement, to give that kind of advice (and carry the liability if they are subsequently judged to be wrong)? So, where does this leave IFAs?

If you think that you can offer a better or more cost-effective service as a restricted adviser, then be a restricted adviser.
If you consider that being independent is the only way to deliver comprehensive advice which has the client’s best interests at heart, be an independent adviser. The possibility that solicitors may in the end allow referrals to restricted does not stop continuing referral to IFAs.

When you emphasise the real value in independence, that the independent adviser can go literally anywhere that the new client’s needs might take them, why would a solicitor want to take the risk of referring clients to anyone other than an independent adviser? And why would clients want to be invited to take that risk?

Finally, why would advisers make such a fundamental business decision on what another profession might decide and may change again in the future? The solicitors will make their own decision and so must you.


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There are 11 comments at the moment, we would love to hear your opinion too.

  1. Ashley Littlewood 17th July 2012 at 3:43 pm

    A lot of writing there to make such a simple point. So, in summary, restricted status reflecting anything other than independent advice is left describing what is simply too wide a spectrum of advisory offerings.

    Polarised titles for a de-polarised world

  2. So, why has the FSA, as Lucian writes “decided to use the word …… independent in a way that will make very little sense to anybody”?

    Perhaps the reason could be ascertained if we considered the FSA’s possible objectives. After all, if clarity was the FSA’s true objective, then the outcome could be achieved by using titles such as:

    Independent Adviser – a generalist, fee-based adviser who legally acts for the client, must consider the whole of the market, and whom is remunerated by a fee with no financial interest in recommending a product.

    Independent Specialist Adviser – similar to the above, however, the adviser only advises on a specific area; ie, investment, pensions, mortgages, etc ……

    Tied Salesman – an adviser who acts for a specific company and is limited to recommending that that company’s products and services, as well as providing generic advice and planning services (which must charged for on a fee basis).

    Multi-Tied Salesman – Same as the above, only acting for more than one company.

    The above titles are transparent and ‘do what they say on the tin’. Naturally, I wouldn’t expect them to receive endorsement from tied or multi-companies, as clients may stop to consider why they would wish to engage someone whose options are restricted (in the true sense of the word).

    So either the FSA has yielded to persuasive lobbying from the big banks and multi-ties, or it has an another agenda?

    If I was a cynic (and it’s difficult not to be nowadays), I may wonder whether the FSA has been reading “1984” and has discovered the pernicious application of “Newspeak”, where the proleteriat’s freedom of speak and imagination to dream is limited by restriction or opacity of language.

    While even the FSA might find it difficult to abolish chunks of the dictionary that it takes issue with, if it wanted to kill the concept of ‘independence’, it could do so by devaluing the word or using it in an unclear and opaque manner.

    However, I am certain that the FSA would never act in such a disreputable and underhand fashion ……

  3. Tracy Holdstock 17th July 2012 at 4:18 pm

    Annuities are outside RDR – I really don’t think so! If you recommend an annuity then that falls firmly under the RDR rules.

  4. Hot news – definition of ‘independent’ remains the same. Apparently unbeknown to Mr Muirhead, the definition of ‘independent’ as a ‘whole of market’ adviser dates back as far as The Financial Services Act 1986, which introduced the concept of ‘polarisation’. This was unchanged by ‘depolarisation’ in 2004 so it is hardly fair to accuse the FSA of inventing “a contrived definition of independence that no longer accords with the commonly accepted meaning of being free from third-party influence”, when that has never been the definition according to law.
    Of course this definition is increasingly unsuitable in an age where financial products, tax wrappers, are increasingly commoditised and the real answer is a change of legislation to get rid of this limited and thoroughly out of date legislation.

  5. @Lucien Camp

    When a consultant writes an article on a subject, where there are two competing sides (in this case, independents and restricted), it would be informative for readers if the said consultant could disclose whether they act for each on an equal basis.

    Or if, in most cases, they are instructed by one particular group and, therefore, could be subject to a conflict of interest ……..

    Mr Camp – do you care to disclose your position?

  6. An interesting, sensible and informative article, Lucian. Thank you.

  7. Could someone please help clarify part of the content above?

    Are non investment linked annuities, being policies of assurance, exempt from post RDR commission bans, or not?

    I ask as nothing seems to be coming from our esteemed Regulator.

  8. Interesting, sensible and informative??
    Maybe, except where it is factually wrong.

  9. The definitions don’t have to come from “our esteemed regulator”. It’s in the rules now!! An annuity is a life policy, clause (a) in the definition of investment product / retail investment product.

  10. Gill says, “It’s my view that this consultation is triggered not by referrals to IFAs but to discretionary investment managers. With RDR implementation they too will be subject to the same regulatory framework with which IFAs are very familiar.”

    Few points here. One, discretionary management as an activity is not affected by RDR, i.e. the RDR rules don’t apply unless they also give advice.

    Two, any specialist, including discretionaries, pension people, etc. pre RDR were ‘independent’ providing they weren’t tied to a provider(s).

    Three, there are no separate rules for discretionaries pre or post RDR, they are already, and will be, subject to the same ‘regulatory framework’.

    The simple (and uncomfortable for some) truth is that the FSA have fundamentally changed what independence means and based it on products rather than service and relationships. This can only add weight to Lucien’s viewpoint.

    Want advice on your shares or pension transfer? Chances are you won’t be getting it from your ‘independent’ adviser. Why? Because the FSA have contrived a restricted definition of the term… simples!

  11. Whilst I do agree that the terms independent and restricted (under their new guise) may gradually become meaningless, whether an adviser is whole of market or not will remain as important as ever.

    Mr Lucien’s article, and many commentators, seem to focus on advice on new “products”. What about reviewing and altering existing arrangements? As someone “on the ground”, I know that IFAs spend a lot of time doing this.

    Unless tied or multi tied advisers (using current terms) become authorised to provide advice on products from other companies (and if they can, how impartial will they really be), being independent of product provider is key. It is also the only way to be able to do the best for your client and is the “life or death principle that makes such an important, career-defining difference” that Mr Lucien doesn’t seem to understand.

    IFAs are “emotional” about this as they know it to be true. It is also why I believe that the SRA and ICAEW should not be able to refer to tied agents.

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