The debate about independent and restricted advice has taken a new course over recent weeks with the publication of the latest updates by the FSA.
Emotional attachment to the philosophy of independence is strong. Many have built their business and reputation on an ability to put the client’s interests first. The latest papers set out the requirements and expectations for the new independent. As ever, this only represents guidance and interpretation is still needed ahead of any implementation.
There are a number of questions that businesses should now be asking themselves ahead of deadline day and these should be asked with some emotional detachment and an element of pragmatism.
After 2012, all investment advisers need the same minimum qualifications and all will be subject to the same basis of remuneration. The difference will be around advertised product selection and whether the business considers all product areas or has considered their position and abilities and chosen a range of products to deliver their solutions.
Surveys suggest most intend or expect to stay independent in 2013 but there are some things to consider. Also, it pays to start with the client, which is still unusual for many in financial services.
Good businesses should be considering what their clients want and are prepared to pay for before they establish their proposition. Next, they need the right people to be able to provide the proposition and to ensure it is compliant and profitable. At this stage, it makes sense to consider whether this is independent or restricted.
There are some other issues to consider in remaining independent. Does the business have the resources and the processes to ensure they can prove they have assessed the whole market for their clients? It is easy to meet the regulatory requirements but is it needed and worth the extra cost and risk?
Having done the analysis above, does the natural solution look like financial planning with a naturally restricted range of solutions for the clients that the business serves?
One further consideration for the business is professional indemnity insurance. There are suggestions that the market is hardening. If businesses are holding themselves out to be independent in the future, it is implicit in this that they consider all product areas, which has to increase the premium with all other things being equal. This may be a cost worth paying but make sure a full dialogue has taken place before decisions are made.
Many IFP members and accredited financial planning firms have gone through the transition exercises discussed and more. Ideally, independence is the preferred option but over the years there is an acceptance this is not what is really important to their client nor necessarily what they deliver.
Is the client seeking independence or an individual and business they can trust to look after them and their family, to help deal with the life and financial challenges ahead?
It is important to ensure this, along with compliance and profitability factors, drive the debate and not decisions based purely on emotion.
Nick Cann is chief executive of the Institute of Financial Planning