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Robert Reid: Compromised Adviser – a new advice label?

If proper due diligence is done on investment funds then the departure of star fund managers would be less of a concern.


Life never fails to amaze me, as I returned from a conference in the USA the UK investment market was rocked by a certain manager’s forthcoming exit.

I have never ascribed to the star manager syndrome but many do and their reaction left me puzzled. In a time where the FCA has made due diligence part of its standard mantra I started to consider what exactly constitutes adequate due diligence on an active fund.

If people see it as a one man show, then we need to assume that they asked about key man covers? After all if a star manager dies or is incapacitated for an extended period how would the fund company cover the unexpected costs? Surely a lack of this cover evidences an absence of prudence?

At least in this instance we have been given notice – not something that is available where someone takes ill or worse still passes away.

However, I do not believe that most favoured funds are run by a soloist but by a team. Again, all of that would be revealed by proper due diligence.

Having used the prefix “proper” I think this underlines the crux of the issue, so for a moment let me put things in context. Just as we had when Treating Customers Fairly was launched, the repetition of the words “due” and “diligence” has been done without any indication as to what good looks like.

I recently mentioned attending an FCA course where the regulator explained it has taken the view that regulation where rules are written in management consultancy is ineffective and it is much better to lead by example and clearly set parameters. In the case of due diligence, this guidance has been absent so far and the FCA needs to tell us what good looks like.

As regulation evolves this will mean that the role of compliance officer can no longer be allocated to “billy no mates” and will be a job that needs someone who can not only absorb changes in regulatory practice but can engage and help drive the business.

As with due diligence other labels need better definition and these definitions should not be product led, especially as Martin Wheatley recognises that in some cases doing nothing will be the right advice.

This week’s news that several distributors are actively considering a move from independence to whole of market restricted, made me realise just how stupid these labels are and we need to go back to fundamentals.

Let’s take independence first – it is far more important to be independent of mind than of product. This clearly impacts on selection of charging structures, after all if you need to invest or sell a product to get paid you are not independent. As fee levels come under pressure this is not sustainable.

Whole of market restricted is a crazy label if only due to its contradiction. It’s even worse when those using it sell places on their panels. I favour the term compromised adviser but I suspect others will not as the last thing they want is a label that reflects reality.

The conference I referred to was in Philadelphia where a good friend of mine lives before I headed home he took me round the old town and into his favourite pub where the manager is another Scot. The exiled Scot greeted me warmly and asked me to step into his “bus shelter” where he produced the favourite wine of Rab C Nesbitt – Buckfast, I declined his offer of a swig but my Irish friend did not and who know the long term effect of his rash decision. Let’s hope the FCA avoids the Buckfast of labels.

 Robert Reid is managing director of Syndaxi Chartered Financial Planners



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There are 9 comments at the moment, we would love to hear your opinion too.

  1. I think the only people talking about IFA / Restricted are IFAs.

    Move on time, the most important issue is – does the end user care.

    Looking at St James Place fantastic success post RDR the answer appears to be no.

  2. Black Dog

    Time will tell and we will have to see whether St James Places charging structure and business model is sustainable in the long term.

    What is obvious is that consumers need to look beyond the flash name and the marketing material and see what they are actually buying!

    I think it is very unhelpful that is allowing wording like “restricted whole of market” which is very confusing to the consumer if you are restricted you are only offering a product range from a panel there should be no confusion over that and surely, if you are only offering limited range of products charging structures should be less not more.

  3. The labels that matter are;

    Are you good at what you do?
    Are you honest and trustworthy?
    Are your clients happy to recommend you to others?
    Are your fees fair and reasonable?
    Have you improved someones situation?
    Would you be happy giving this advice to your mum/dad/granny/wife/self?

    If can answer yes to those questions then what does anything else matter? If you do those things right then your business will look after itself and your clients will be happy.

    In 5 years I have built a business from scratch, I have professional connections, a solid client base and AUA of £20 Million. That is all from a zero start point. I don’t have a website, I don’t advertise, I don’t buy in leads. I’m busier than I’ve ever been, have plenty of new business on the go and lots of recurring income. I don’t waste my time self promoting in the trade press and i don’t worry about other advisers. I just get on with doing a good job for my clients and don’t worry about labels.

    Black dog is right. Move on and get on!

  4. @ Peter Herd

    I agree the public should be aware of what they’re buying and independence under the RDR definition doesn’t stand for much.

    If I don’t give advice on equities can I be independent? Yes
    If I don’t give advice on corporate and sovereign debt can I be independent? Yes
    If I don’t give advice on pension transfers can I be independent? Yes
    If I don’t give advice on long term care can I be independent? Yes
    If I don’t give advice on life cover and CIC can I be independent? Yes

    However, I can give advice on all the above and all packaged investments with the exception of non-EU collectives and I will be restricted.

    Now I’ll understand if this doesn’t fit with your perception (and others – hello Harry, Gill, Martin, etc.) of what independence is about but it’s the FCA’s definition that counts.

    You can generally test the validity of a system (in this case the differentiation between independent and restricted) by looking at extremes and seeing if it still holds. The current difference breaks down long before any extremes are approached.

    To make things even easier a client can simply ask if their adviser is acting as their agent which would preclude any ties to providers without demonising whole of market advisers who choose to specialise. Why can’t I call myself independent if I only advise on investments – I did pre-RDR and no one complained about it then. Being independent is not the same as being an IFA.

  5. The fact that this debate is occurring at all makes one thing resoundingly clear: the new Restricted/Independent definitions are not currently working.

    If large swathes of the industry aren’t clear on it, how can we expect the consumer to understand?

    The FCA need to do more work on this. Providing more detail or (dare I say it) being more prescriptive on how the nature of any restriction is communicated to the consumer is clearly required. Or perhaps it would be better to change the definitions altogether so that the consumer instantly understands the nature of any restriction?

    Some commentators here suggest that consumers do not care about this topic or that it is irrelevant. It is more a case that consumers do not understand. How can you care about something if you do not understand it or know what the ramifications are?

  6. James Hurdman

    I totally agree with your viewpoint that it all comes down to the definition and the problem with the current definition is it is too broad.

    There are few things that are desperately needed to be sorted within the financial advice profession:

    Simplified Administration

    Instead of always going on about simplified advice maybe we should concentrate on simplifying the paperwork so that consumers have a realistic chance of understanding what has been given to them. Instead of the reams of paper that is supplied at present which realistically either gets binned or totally ignored.

    Realisation of limitations.

    I think you’ll be surprised grey area but I actually agree with you the fact is it is impossible for the average person working within financial services to be an expert on absolutely everything. The fact is the title independent or restricted is misleading as it seems to indicate that your advice is restricted when in fact it is your product range that is restricted.

    As we all know giving financial advice can be done on a general practitioners bases meaning that you’re giving a general overview of somebody’s finances. What should be clear to consumers is whether you are giving advice in respects to a product from a limited number of product providers or a substantially larger group e.g. whole of market.

    If an adviser is only giving advice on say 50 funds out of available 3500 and surely it is wrong that that adviser be described as a whole of market adviser.

    The concept of whole of market or restricted in my opinion in the current market condition is a bogus one. The question should be asked is the consultant working independently of product providers and is that adviser able to assess whether that product is on their panel independently of any vested interests surely that is a more pertinent question?

  7. @PeterHerd I assume you’re at a network with all that paperwork? Or listening to a compliance company?

    The FCA seems against reams of paperwork.

  8. I usually find Rob’s articles thought provoking. In this instance I am delighted to see some of my own views reflected as I was beginning to think I was a lone voice.

    This concerns the cult of the Star Manager. I too just cannot envisage a highly respected large international asset management firm saying to an individual – here’s £30 billion or so – go away and play with it. This cult of the individual is one of the more depressing things I find in our industry. It treats us as morons. It pulls us down to the level of the X Factor or Britain’s Got Talent. Do the big firms really think we are so facile and pathetic?

    I would have thought that these undoubtedly talented people are more akin to the spark plug in a smooth running engine – that a sole motive force. If I did think that the fund relied on one individual I would be very disinclined to go near it.

    As far as definitions of Independence are concerned Rob has hit the target pretty square on and it seems to have been missed by other contributors. “….to be independent of mind…” and in my opinion also independent of product. Large firms and networks understandably go restricted because they need to maintain control and uniformity – the very antithesis of independence. Restricted – whether whole of market or not can also have underlying commercial considerations – which is very likely the reason that some networks go this route (in addition to needing control).

  9. Is there really no clear guidance on what ‘due diligence’ entails? How can IFAs be expected to do ‘due diligence’ if so? Yet FCA (as far as I know) is encouraging investors to challenge IFAs over the ‘due diligence’ they did over Arch Cru debacle, so clearly FCA must have some pretty hefty expectations in terms of what they expect IFAs to be researching? How can IFAs prevent this sort of debacle happening again, thus protecting themselves and their investors?

    Spread the word about investor group challenging Capita over Arch Cru, because if we win we may set a precedent which could benefit IFAs too. 550 signed up so far. @InvestorJustice

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