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MM Leader: Don’t restrict your independent thinking

Since the inception of the retail distribution review the market has been flooded with research and wild predictions of what will happen to the sector after 2012.

Such research is only ever a snap-shot in time, based on the assumptions of an ever changing set of proposals and dependent on how informed and prepared those answering the questions are. One fundamental question is whether an adviser will continue as an IFA, will become restricted or will offer a combination of models.

Most research suggests the majority of IFAs intend to keep their status after the RDR, with a minority to offer a hybrid service and some offering a restricted-only service.

All such plans should be focused squarely on meeting the needs of the client, rather than the provider or distributor. One crucial area of disagreement at present is over the efficiencies that can, or cannot, be gained from offering a restricted service as opposed to an independent one.

As long as the FSA polices its rules properly, restricted advisers should be the agent of the client, independent in mindset, with nothing to cloud their judgement except ensuring the interests of the client are achieved.

Arguments in favour of restricted advice have focused on the efficiencies firms think they can achieve through technology and model portfolios to offer clients a decent “independent” service without jumping through the hoop of the FSA’s new definition of independence.

If you can lower the costs of advice to a certain segment of clients, without changing the standard of service or outcome, shouldn’t this be considered?

However, the million-dollar question is whether these efficiencies can really be achieved. Tenet, previously very open-minded to restricted advice, now believes the costs and complexities of remaining independent are not as onerous as first feared. If you cannot save the client money, why are you restricting your service?

In contrast, Aviva believes restricted advisers could save up to 40 per cent of the time of required of independent advice and forecasts a large movement of advisers to restricted.

All the research suggests next January will see neither a big bang of advisers leaving the market nor a huge shift to restricted advice.

However, it is healthy that such a debate is taking place as firms take a long hard look at their service propositions to ensure the financial planning needs of the client are the overriding driver.


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Trust me, if the cost of advice of being “restricted” is lower, the saving will not be passed to the client. We need to start building up profits again and our balance sheets have taken a hammering over the last few years with falling fund values under management, poorer returns, clients holding off until there is some sort “normality” in the markets, the increasing costs in our business, exam costs (in terms of lost time for studying when we shoud be writing business) RDR implementation costs, on going RDR costs and all regulatroy fees…….. I think I need say no more

  2. Isnt the real problem (in terms of consumer choice anyway) the high cost of REGULATED advice, rather than the restricted v independent cost issue?
    IF a fairly knowledgeable client asks for something “simple” , eg which uk equity fund should they invest this years ISA in, one could deliver adequate and informed “advice” plus the wrapper solution verbally (if it were possible) and probably charge no more than £50-£75. Conversely, if you have to document everything, jump thru all the other regulatory hoops etc then you couldnt do it for less than £300, and even thats probably unprofitable. So thats a whopping 500% increase in cost to the client compared to what hed prob be happy with. The regulatory burden means the provision of adequate (note Im not saying PERFECT!) low cost advice is impossible and for many clients who dont need 100% hand holding thats a real loss of choice I think

  3. A suitability report should be produced in a durable medium.
    Is the definition of durable medium words in English or Urdu?
    Answer – It should be in the language the client understands (NOT THE FSA)
    Is paper a durable medium?
    Answer – Yes, but paper is inflamable, so if the only record is paper, thenthe record is inadequate so a second copy which could also be in paper form would be wise.
    Is a slab of stone engraved a durable medium?
    Yes, Sun Tsus Art of War still survives (in part) but they are heavy and take up a lot of space and a duplicate would be good.
    Is a waxed slate like the Roman military used to use a durable medium?
    Answer – Yes as some still survive now, but a stone copy would be good
    Is a recording of the actual statements made to and from the client durable?
    Yes, but a back up would be good and with changes in electronic data, ensuring there is a second copy and that the systems are updated and checked for corruptability, then that would be wise.
    So WHY does everyone write paper suitability letters to clients that invariably are NOT read (or acted on) by the client, when they ACT on what is actually said to them?
    You tell me…..

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