Industry experts are divided over the efficiencies and cost savings for clients that can be achieved through offering a restricted advice service rather than an independent one.
Last week, Aviva predicted over 75 per cent of the market could end up restricted by 2015 and suggested advisers offering a restricted service could save up to 40 per cent of the time required to offer an independent service.
At a Marketforce conference in London, Aviva RDR implementation manager Ross Anderson said: “If are looking at independence strictly from the regulator’s definition, that is going to be potentially a very small part of the market, both in terms of regulatory censure but also in terms of the cost of providing independence.
“Whether it is termed as restricted whole of market or restricted multi-tie, this could well be the market norm, with chartered status potentially becoming the differentiator from the customer’s point of view.”
But Tenet distribution and development director Keith Richards (pictured) says: “Advisers are being swayed towards restricted advice models, either due to a misunderstanding of the complexity involved or due to the opportunity of commercial benefits.”
He says Tenet’s research has concluded it is unlikely that “representative of whole of market” restricted-advice models or multi-tie-style arrangements would be any cheaper to operate than full independence. Richards points out that independent advisers will still be able to exclude certain products on the basis of suitability before conducting research.
He says the firm’s investigations on professional indemnity cover also suggest it will not be cheaper for restricted advisers than independents.
In contrast, former Threesixty technical director David Ingram believes there will be greater pressure on advisers who want to call themselves independent. Ingram, co-founder of support services business Aim Two Three, says while independent advisers will not, for example, be forced to recommend unregulated collective investment schemes, they will have to demonstrate they understand the products enough to deal with them in their practice.
Ingram adds: “Providers will have factory-gate pricing but there will be all sorts of different gates at the factory. I am sure they will be able to send some products out cheaper to those that sign up to multi-tie-style arrangements than they do to whole of market arrangements.”
CWC Research has carried out over 120 in-depth interviews with advisers and national IFA and network bosses about their expectations for distribution after the RDR. Its findings, published last week, show 88 per cent of respondents say they intend to maintain IFA status while 70 per cent of national and network bosses say they will be offering restricted whole of market advice.
In the report, managing director Clive Waller says: “The bar on independence has been raised to a level that will be untenable for many, possibly most, advisers”. He says the level of research required in maintaining independent status has “raised considerable doubt about the viability of the IFA option” and adds that for many advisers the restricted route “looks overwhelmingly attractive”.
Page Russell director Tim Page thinks providing independent advice is going to cost more to deliver but believes this can be offset by using centralised investment propositions such as model portfolios. He says: “Before people jump away from independence they need to have another look at what they need to do in the restricted area and think about what they are giving up.”
Informed Choice managing director Martin Bamford suggests that as we get closer to RDR, the majority of advisers will be swung by the importance their clients attach to independence and decide it is not worth the risk of “dabbling” with restricted advice. “Independence will be particularly important for those IFAs who want to maintain relationships with other professional advisers, as I cannot imagine lawyers or accountants will view restricted advice in a favourable light,” says Bamford.
“If these forecasts prove correct, which I doubt they will, what a great opportunity for advisers who retain the gold standard of advice and stay independent.”
“A survey by CoreData last week suggests full independent advice will be offered by 73.8 per cent of IFAs after the RDR. Not sure where Mr Anderson gets his information from but CoreData interviewed IFAs.”
“Of course, Aviva, Standard, Friends and Axa are going to say this. It is their only hope of staying in the game in the long term. I agree with Martin Bamford. The more advisers who restrict themselves, the larger the commercial opportunity is for my firm.”
“Our RDR survey conducted in December indicated 66 per cent would remain independent, 22 per cent restricted and the rest not yet sure, so I think the restricted trend they suggest is right. Eighty-five per cent reckoned clients did not understand the difference between independent and non-independent advice.”
“The FSA has all but killed the unique position of IFAs and by making their lives hell, they are likely to go down the restricted route, which, in reality, is not that restrictive.”
“I have been operating a restricted model, if you go by the FSA rules, for years. It has not hurt my business or my clients who, by definition, have chosen restricted advice by wanting to invest ethically. I am not sure being independent is all it is cracked up to be. There are more important issues such as trust, a fair price and quality of service.”