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Restricted row over Aviva 75% claim

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.

Advisers’ reaction

“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.”

Martin Bamford

“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.”

Blair Cann

“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.”

Tim Page

“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.”

Derek Bradley

“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.”

Alan Lakey

“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.”

Jeremy Newbegin

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. Alistair Cunningham 4th April 2012 at 3:28 pm

    As a Chartered, Fee-Based, blah, blah firm since inception 4 years ago, I’m fairly confident most of our clients would not be hurt by “restricted whole of market” advice. I did the analysis last year and only 1 in 20 needed us to be independent. I’ll remain on the fence, but if Professional Indemnity insurers treat Independent’s as I suspect they will (very, very unfavourably) why would we want to offer our clients a more expensive service for no benefit to them? The main benefits I’ve seen quoted on independence seem mainly about egos.

  2. RDR has been specifically designed to get rid of the current IFA sector, place the distribution of financial products into the hands of direct, banking and building society services.

    Being “restricted” is not Treating Customers Fairly IAW FSA rules, current IFA clients will be disadvantaged if their IFA firm goes the “restricted” route and of course there is the clear admission by the FSA that consumer outcomes will suffer as a result of some consumers not being able to afford to deal with an iFA post RDR.

    Being whole of market is not the issue, if a clients ATR clearly does not support higher risk investments in pensions or other products then these can be excluded without any draconian research as they are clearly unsuitable.

    Post RDR is going to be a challenge, being an IFA is the only sensible way to offer our services and so what if you don’t make a fortune in commission and have to rely on fees, get on with it and stop this interminable whingeing or get out.

  3. It`s exactly the same as our education system. We have gone full circle and next year only the chidren from monied families will be able to get the best education. No proper advice for the less well off.Exactly the opposite of what the FSA wanted….or did they?

  4. I find that every time I have to engage with Aviva and their horrendous admin labyrinth I don’t just feel restricted………

  5. Richard Ross @ 3.52pm

    I am glad I’m not the only one….’We don’t use email and our minimum response time is 10 working days…’

  6. Ive lost the will to live on this one. I guess there are huge scare stories going round on this, with the big providers wanting us to sign up with their restricted advice proposition. This way they can own us and our clients, and in order to feed the voracious appetite of their hungry shareholders, they are willing to treat IFAs unfairly.
    The FSA seem to be at odds with this, refuting most of the more outragous claims of the marauding hyenas, and not requiring more research on more extreme products if unsuitable to all but the reckless. Do we need to categorize clients for the FSA? No. Maybe the insurance companies need us to do it so they can judge just how much they need to pay as a signing on bonus.

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