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Nic Cicutti: There are simpler ways to define independent advice but does Apfa care any more?

Trade body surrendered moral high ground on the question of independent advice four years ago


Despite regularly wittering on about scooters, I have never been a Mod. Don’t get me wrong: I love the clothes and the music. My problem, sadly, is I cannot get over the anal quality of some Mods, for whom everything becomes an exercise in one-upmanship and a pretentious search for “difference” from their peers.

That said, I really get the slogan, apparently first coined by Harley Davidson owners (of all people) but appropriated by Mods to describe their own scene: “If I have to explain, you wouldn’t understand.”

As a keen Harley rider himself, West Riding Personal Financial Solutions managing director Neil Liversidge is perfectly placed to understand this phrase. The trouble is, increasingly he finds it being applied when he stands up for basic definitions such as “independent financial advice” against organisations such as the FCA – and, possibly, his own trade body.

In last week’s edition of Money Marketing, Neil recounted his experience of a consultation on this issue at a meeting between himself and FCA representatives a few months earlier.

In fact, I am not sure if “consultation” is the right word; it sounded more like a vague discussion between individuals, with no firm outcomes promised or expected from the meeting. 

However it may be described, Neil wrote: “Up came the topic of independence and I ventured my definition: firms that can only recommend in-house fund-of-funds offerings plus, say, protection from a limited number of companies are not independent. 

“Those under no such constraints, who are willing and able to refer clients to those better qualified to undertake certain tasks, whether they are advisers in their own firm or with another firm, are independent.

“Simple as that. What could be more independent than to say: ‘She can do this better than me – go see her’?  More importantly, what could be fairer or more beneficial from the client’s viewpoint?  Not one person in the room disagreed.”

I don’t disagree either and neither would most readers of this column. Except that when the regulator published its thematic review on independent financial advice in March 2013, it not only appeared to deviate from this simple approach, it introduced new potential hazards for anyone wanting to call him- or herself an IFA.

According to leading financial services barrister Peter Hamilton, the FCA’s review goes so far as to state that if an adviser “routinely” refers clients to another specialist in the same IFA firm because the former is “unable or unwilling to advise on certain retail investment products”, they “would not meet the independence rule”.

I have read the FCA’s review and Hamilton is right: this is at first sight a contentious definition of what constitutes “independence”. He also has a point in highlighting the reference to “a proper system of internal peer review”, which means “no one outside the team that wrote the report sat down and thought about what the rule said and whether the report was putting an incorrect interpretation on the rule”. And he is surely right to point to an absence of consultation with independent firms, notwithstanding Neil Liversidge’s meeting with regulators – something
I will come back to later.

Even so, having spoken to several independent advisers recently, my understanding is that if an IFA were to ask a colleague in the same firm, or even in an outside company, to assist on specific aspects of product advice, this would usually be classed as acceptable to the FCA.

The key is whether the client is routinely being handed over from one adviser to another in some form of pass-the-parcel exercise. In addition, the advice from another source is treated as being based on an entirely separate perceived area of expertise, or even from a different organisation within the same firm, for example, using both restricted and independent advice options simultaneously.

This cannot be right. There must be a structure in place where the original IFA is able to weave together and take ultimate responsibility for each strand of advice and product recommendation, no matter where it comes from.

For all that, Neil is correct in saying there are simpler ways to define independent financial advice. So why are they not being used?

My guess is no one at Apfa cares any longer. It surrendered the moral high ground on the question of genuinely independent advice at least four years ago, even before the publication of Aifa’s paper, Advice Horizons, in 2010. Then, it defined independent advice as the “gold standard”, before discussing restricted advice almost as favourably. Today, I doubt the words “gold” and “standard” would get a look-in were Afpa discussing the same topic. This is perhaps best exemplified by fellow Apfa council member Alan Lakey, whose online response to Neil’s article was telling: “I believe the distinction once afforded by the title ‘independent’ is no longer worth fighting for.”

The bottom line is the preservation of the term “independent advice” is now the preserve of those who, like Neil Liversidge, believe the acronym IFA still has traction among millions of consumers.

For other advisers who have long since embraced restricted advice, “if it needs to be explained, they probably wouldn’t understand”.

Nic Cicutti can be contacted at



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

  1. @ Nic

    Naturally my views are not necessarily those of APFA.

    My point is making this statement is that when you have a regulator so bogged down with the minutiae that it cannot envision the bigger picture then no real progress is possible.

    No sane individual would accept the FCA definition of independence. Equally, there are so many wrongs to put right that each of us has to choose those that most irritate and/or those that they have the best chance of winning.

    By splitting mashing independent, tied, multi-tied and other weird combinations into a foul concoction the regulator has displayed its backside and shown that sometimes it hasn’t the faintest idea of what it is doing or the damage and confusion it is causing.

  2. Christopher Petrie 3rd July 2014 at 9:54 am

    Unfortunately APFA is the total opposite of what its predecessor, AIFA, were.

    AIFA represented IFAs. APFA represent National & Networks (naturally enough, as it’s those organisations that fund it). National & Networks don’t like IFAs as they prefer a Restricted model. But they hate the term “Restricted” as it gives us IFAs a competitive advantage.

    So, APFA (AKA Nationals & Networks) spend their time fighting for a change of name for the Restricteds out there. They don’t give a hoot about IFAs and will never stand our corner. They fight only for our Restricted competitors.

  3. @ Christopher Petrie

    I’m neither a national nor a member of a network. However I have been compelled to adopt a restricted moniker by the antics of the FSA.

    You are correct that ‘restricted’ is a horrible term. It implies all manner of things – limited intellect, physical incapability, limited knowledge, etc all of which are incorrect. let’s get things straight here – this is a muddied pond due to the regulator stirring with a big stick.

  4. Surely the ‘advice’ should always be the same, regardless of whether you cling to the ‘independent’ or ‘restricted’ tag? After that you are just a salesman picking your perception of the best products….

  5. @ Xeno

    Very good point and yes it should and is, however the Indy V restricted, is for consumer benefit IE -: so they know exactly what type of advice they are getting and or its limitations, this is were the interpretation could be / should be so much clearer.

  6. Julian Stevens 3rd July 2014 at 1:32 pm

    I think the FCA’s real agenda is to make the requirements for independence so ludicrously onerous that more and more IFA’s (as did I last year) will decide “To hell with this, it simply isn’t worth the hassle. I may as well go restricted”. I know of nobody who’s done the same who reports any detriment to their business and it certainly hasn’t hurt the likes of SJP.

    It’s yet another example of the FCA trying to fix something that really isn’t broken, whilst failing to notice so many approaching motorway pile-ups which they then blame on intermediaries. Isn’t that about the measure of it?

  7. Whether it has a detrimental impact on their business isn’t really the issue – it’s whether it has a detrimental impact on the advice clients receive.

    I feel there is a lot of bluster here – the bottom line is that an IFA needs to demonstrably be able to offer advice covering a wide range of retail investment products from the whole market. A restricted adviser doesn’t – and whilst that restriction may (for example) result in a managed portfolio of 5 portfolios (as opposed to the whole universe of retail funds) or opting not to advise with regard to (for example) pensions – the bottom line is that a client who wants all solutions considered can only be certain of this where an IFA is approached.

    A restricted adviser MAY be able to, but likewise they may not and my overarching concern is that given a client won’t know what is not appropriate at the onset of advice, how can they be certain the restriction isn’t detrimental.

    e.g. I had a potential client visit yesterday having visited Nationwide. they offered advice – so did I but we’re poles apart. Their advice is restricted (as far as I’m aware) to L&G and therefore I pointed out that even if L&G were known not to be the most appropriate provider for him, the adviser at Nationwide could still happily recommend that product given that the TOB sets the parameters of the advice. Where things get more murky is when the restriction isn’t quite as clear.

    It’s not a moral high ground were taking, we simply feel that the nature of our clients mean that we do not wish to restrict our potential solutions. What is frustrating is that this is sometimes implied as being arrogant….

    IMHO clients are oblivious to this but debating over the fact ‘restricted’ is overly broad, it should at the very least make the client be aware that the advice comes with caveats – and that they should ensure the caveat does not confluct with their objectives.

  8. @Paul Stocks
    I agree with your assertion that it’s what clients receive that’s important… and therein lies the problem. I can call myself independent and not offer advice on equities, derivatives, commodities, corporate/government bonds, pension transfers, long term care – in fact anything that doesn’t class as a ‘packaged retail investment product’ (PRIPs). I can also ignore discretionary management.

    However, if I choose to not advise on Ukrainian unit trusts but cover everything else then I’m restricted. Really?

    If’s no longer about whether you just recommend one companies products or a restricted range, that argument disappeared on 31 December 2012 with RDR. Now it’s only about whether you offer the full range of PRIPs – ironically a restricted range of investments. Perhaps clients should be made aware of the restrictions of dealing with an IFA to ensure it doesn’t conflict with their objectives?

    ‘IFA’ and ‘independent’ as a marketing tool probably still has some effect but I doubt very much whether there is a client in the land who understands what it really means in this brave new artificial world…

  9. @Nic

    Grey Area summed this nonsense up far more expertly than I did – please take note.

  10. @Grey

    If you choose not to recommend Ukrainian investment trusts because you think they’re too risky for your client base, then you’re clearly aware of Ukrainian investment trusts, have considered them and then discounted them for a valid client-centred reason. And therefore fulfilled your duties as an IFA.

    Ignore the FUD.

  11. @Sascha Klauß
    Your comment is a good illustration of why the rules are flawed and too complex.

    I chose my words carefully. If I choose not to advise (as distinct from consider for each and every client and exclude) then I am restricted.

    Ignore the FUD? Have you actually read the guidance on this from the FCA? At the WMA Compliance Conference yesterday Rory Percival was trying his best to clarify some aspects of RDR requirements. The level of detail to which the FCA are holding firms to account is truly mind-boggling. They can say “it’s simple” but if that were true then why are there so many questions from intelligent people 18 months on?

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