Independent advice has contributed to higher Financial Services Compensation Scheme levies because advisers have been allowed to pick high-risk investments, Sandringham chief executive Tim Sargisson has said.
Sargisson tells Money Marketing that by running a strong centralised compliance process, restricted advisers could screen out some of the unregulated or illiquid investments that have seen compensation claims fall on the lifeboat fund.
Sargisson says: “Independent advice has driven the FSCS levy higher because of poor investment decisions and poor investment strategy.”
“The restricted model ultimately assures people don’t end up in a lot of trouble in future.
“If clients are losing money due to dodgy investments you need a more robust process to stop that happening.
“Whether restricted or independent as a business you have a responsibility that you really understand what you are putting your clients in to before you do it.”
Sargisson also questions whether clients really do favour receiving independent advice over restricted.
He says: “It has become a very polarised debate: independent is good and restricted is bad. People are wedded to the ideology of being independent without understanding what it means for the business. How many of you clients really desire you to be independent?
“If your client demands independent advice and they are paying, great. But for majority of the clients we see the restricted model works very well.”
He also says that the fact that restricted firms are not on average cheaper than independents is down to the charges vertically integrated firms levy.
“On the one hand you have restricted advisers, on the other vertically integrated businesses looking to take a bit at every stage of the food chain. It means restricted ends up being as expensive as independent.”
The first 200 advice firms to join Sandringham, which currently has around 160 firms, are given a 5,000 share stake in the company, but Sargisson says this could be extended as the firm targets 250 firms.
He says: “We might push that 200 figure up…My view is very clear, we don’t want to be bigger than 250 though, its manageable and your back office systems are robust.”
The firm is still bringing in members on an ad-hoc basis, but Sargisson does not rule out a group acquisition.
“It’s still very much an organic process, we are in the business of acquiring firms. However, if the right opportunity came along and our investors were happy to provide funds for a kind of capital event then great.”