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War on independence: New data reveals advisers set for restricted future


Independent advice is set to become the preserve of the wealthy and will be offered by significantly fewer advisers in the next five years.

That is the damning conclusion of internal EY analysis obtained by Money Marketing, which has forecast how the frenetic pace of mergers, acquisitions and consolidations will change the advice market.

From a pre-RDR heyday, where independent advice was the dominant force in distribution, EY now predicts restricted advice will make up at least half of the market by 2020/21.

It comes at a time when the cost of delivering independent advice has been cited as one of the key drivers behind recent acquisition deals, which in turn has raised questions about the profitability of the IFA model.

Money Marketing has spoken to a swathe of the advice profession to understand the true cost of being an IFA, and whether there is a real prospect of independent advice becoming a minority sport.

What the forecasts say

Back in 2009, EY forecast adviser numbers would fall from 33,000 to 20,000 by 2013. The company reiterated its gloomy forecast in 2013, the year the RDR was rolled out. Based on the latest available FCA data, the total number of advisers currently stands at 22,557.

EY, which advises firms on potential deals, estimates at least half of the market will be restricted by 2020/21 and forecasts among smaller firms there will be 300 to 400 consolidations a year for the next five years. Among larger firms where most M&A activity is concentrated, EY predicts 75 per cent will be acquired over the same period.

“There are quite a lot of small firms where the owners are either looking to raise capital or leave the business. All of this sits behind the move to restricted”

To put these numbers into context, Aviva research which tracks the advice market suggests IFAs accounted for 84 per cent of the market in 2013. This fell to 79 per cent in 2014, before climbing slightly to 81 per cent as at November 2015.

EY senior adviser Malcolm Kerr says there are a number of factors driving these models.

He says: “You have got insurers, asset managers and potentially platforms building their own distribution capability. You have also got these consolidators who need a certain degree of scale before they can either float the business or sell it to private equity. Then there are the networks, which are generally moving to restricted models because even without their own investment solutions and platforms, they want to improve efficiencies and governance within the business to drive profitability.

“Add in the whole issue of the costs of giving advice, and the feeling among those organisations is that if they get together they might become more efficient. Finally, there are quite a lot of small firms where the owners are either looking to raise capital or leave the business. All of this sits behind the move to restricted.”

The adviser experience

For Almary Green managing director Carl Lamb, the constant battle against regulatory costs and the overall cost of independent advice were the “final straw”. He agreed to sell the business to Standard Life-owned advice arm 1825 last month for an undisclosed sum, though he will continue to head up Almary Green as part of the deal.

He says: “There seems to be a perpetual open chequebook that advisers have to sign for. We are a well-run business with £400m in advised assets in the bank – if a firm like our’s can’t make it work, what hope is there for the rest of the market?

“Factoring in regulatory costs, and the cost of professional indemnity cover, the restricted model works out to be 10 per cent cheaper than running an IFA business.”

Lamb acknowledges Almary Green was firmly established as a successful IFA and admits turning his back on independence was a “torturous journey”.


“I had mixed feelings about it right up until signing the documents. But the reality is in the next three to five years, most of the industry will be restricted.”

Convenient excuses?

Not everyone is convinced the cost of independence is what is behind the flight to restricted models.

One commentator, who wished to remain anonymous, says: “With a lot of these deals, money talks. I’m not necessarily convinced that if somebody hadn’t come knocking with a chequebook these business owners would have changed their model. It is quite a convenient way of rationalising it after the event.”

And yet the arguments about cost hold strong for some.

Tenet members can offer independent or restricted advice, or hybrid models.

Group brands director Mike O’Brien says regulatory costs are the same regardless of advice model but there are some crucial cost differences, the biggest outlay being research.

He says: “If you are going to be independent, you have to be willing to research and keep up to date on the whole of the retail investment product space. And in order to dismiss a certain product as unsuitable, you have to be up to date on it.

“The real sting is we have a technical and research department of six full-time staff constantly looking at new products, new funds, new services and developing and maintaining panels. We can do that because those six people are spread across the 300-plus firms we look after.

“If you have to do the same level of work as a single firm, generally speaking you don’t have the resources to do that and it is costly to do on a firm-by-firm basis. Even with the team of six that we have, we still buy in some of our research from the likes of OBSR, Morningstar and Defaqto.”

O’Brien says other factors pushing up the cost of independence include the length of time to prepare suitability reports, the controls and processes offered by a restricted model, and the reduced likelihood of loss if advisers are working from a narrower product range.

“Perhaps we should see a return to consumer-centric simplicity with the reintroduction of polarisation Mark II”

Not everyone is convinced, however, that these arguments hold sway. Personal Finance Society chief executive Keith Richards says: “Some advice firms may be able to clarify any material differences where they have gone through the transition to restricted, but more broadly there is little creditable or consistent evidence available on the difference in costs.

“There have been many commentators both pre and post-RDR promoting the principle that restricted models would be cheaper to operate although this has often been based on the ‘intuitive’ perception rather than fact-based reality.”

Sense Network head of marketing Phillip Bray says in some instances the restricted model can act as a barrier to new business.

He says: “We are certainly seeing that the consolidation of IFA practices into restricted models is leading people to want to set up their own business on an independent basis. I spoke to one adviser this week who is part of a restricted business, and he believes the model is holding him back when it comes to getting introductions from accountants and solicitors.”

PI provider O3 Insurance Solutions managing director Jamie Newell adds it is a myth that cover is less expensive if you become restricted because claims are based on when the advice is given, rather than at the point of claim.

He says there may be a marginal saving for restricted firms, but for advisers changing their model now, this will take years to feed into lower premiums.

Misleading labels

The debate about the future of independent advice also has to address the inherent problems of the independent and restricted definitions brought about by the RDR.

Apfa director general Chris Hannant says: “The advice labels are potentially misleading because there is probably more in common between an IFA and a restricted whole of market adviser who covers a wide range of investments. Those types of advisers also have more in common with each other than a restricted whole of market firm and a restricted tied adviser. There is a huge gulf there, so lumping together firms based on ‘independent’ or ‘restricted’, which operate completely different businesses, is confusing. The broadness of the labels means this is not a black and white issue.”

“Factoring in regulatory costs, and the cost of professional indemnity cover, the restricted model works out to be 10 per cent cheaper than running an IFA business”

Meanwhile, Richards wants to see a return to the simpler language when advisers were tied or independent.

In the PFS’ input into the Financial Advice Market Review, Richards called for the introduction of different labels: the company financial adviser and the independent financial adviser.

He says: “When bank advisers, and indeed tied advisers of the past had to disclose they could only advise on the products and services of their respective company, they were simply reinforcing the client’s expectations and were logically acting as agents of the company. Independent more intuitively meant independent of a single company and therefore acting as an agent of the client.

“Perhaps we should see a return to consumer-centric simplicity with the reintroduction of polarisation Mark II.”

For Threesixty managing director Phil Young, the challenge is not delivering independent advice profitably but delivering it at scale.

He says: “From a purely business perspective, the highest profit margins come from asset management rather than advice. As a result the greater investment (whether in the form of equity, debt, private equity or venture capital money) will go into firms who also run money. Once you become an asset manager and an advice firm, it’s incredibly difficult to maintain genuine independence, even though a few firms still do this.

“I don’t see a great deal of difference in pure regulatory costs between the two models, although with costs overall on the rise the availability of additional revenue through  asset management will be attractive to maintain profits.”

Kerr says the move away from independence by respectable, highly professional firms gives a certain credibility to the restricted model.

But he adds: “I would think it very unlikely there will come a time when every adviser is restricted. A lot of advisers are in the private client or family office space, where independence is what they sell. They would not want necessarily to be associated with some big institution.

“IFAs may amount to the smallest number of players, but that doesn’t mean to say they will be handling the smallest amounts of money. I am very confident about the future of IFAs, but there will be less of them, and they will be charging premium prices for their independence.”




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Baigrie Davies co-founder Tom Baigrie says “the world has moved on” from the independent versus restricted advice debate after completing a deal that sees it become the London office of Standard Life-owned 1825. Baigrie will leave the business following the expected completion of the deal in Q3 and says he has no concerns about the […]


Carl Lamb: Have I sold my soul by abandoning independence?

It is now common knowledge I have signed an agreement that should lead to the acquisition of my firm by Standard Life’s financial planning arm 1825 . Real change is needed in our sector if we are to continue to meet the growing need for affordable advice. Over the past year I have taken a long, hard look […]


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Standard Life’s financial planning business 1825 has completed its second acquisition within a week with the purchase of Scotland-based Munro Partnership. The deal adds more than £600m in assets under advice to 1825, and comes shortly after the firm announced a deal to acquire Norwich-based Almary Green. Munro currently has offices in Ayr, Glasgow and […]


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There are 8 comments at the moment, we would love to hear your opinion too.

  1. Dennis & Nick have laid out the basics. Advisers like them with the backbone to remain independent will be sure to reap the rewards from a discerning public. Sure it won’t be ‘the great unwashed’, but they will benefit from the better off and more discerning public. They will have plenty of business as the pool of true independents gets smaller and those in a position to make referrals will be sending droves to their offices.

    They will have continued to position themselves on the high ground while there will be little to distinguish the droves of restricted and tied advisers whose business ethos patently puts their own profits before the clients best interests.

    Go to you independents – your future is bright and a plague on those clever clogs self-appointed researchers.

  2. Carl Lamb ‘I had mixed feelings about it right up to signing the documents’ and to finish that sentence ‘then I saw the size of the cheque and thought sod it’.

    For networks and large firms Restricted removes some of the compliance oversight issues independence can bring but those can be managed through centralised research and paraplanning with little additional cost and can actually improve adviser efficiency. As several people far wiser than me have said it is a myth that independence is more expensive certainly in my own case Restricted with a network would have been far more expensive that DA and independant by about the same amount Mr Lamb claims independant is more expensive than restricted.

    Last year I took on three large new clients, all refered all because I was independant all the clients asked specifically if I was fully independant and only then were they happy to deal with me. If I’d said no it would have been a very short meeting.

  3. For small IFA firms like mine it’s not all about the money. Yes, we could be slightly more profitable if we were restricted and even more so if we sold our soul and joined a vertically integrated company but we choose not to in the interest of our clients. How the heck a prospect is meant to tell, easily, the difference between the restrictedness of non-IFAs I don’t know. It’s one of the reasons we are independent, always have been and intend to remain so.

  4. It’s not the research that’s expensive, it’s the If IFAs could deliver independent advice in a cost effective way then it could be a mass market product, but IFAs poo-poo Robo-Advice!

    4 years ago First Actuarial wondered how it could market its research on workplace pensions , now over 100 employers a week are choosing a workplace pension using a whole of market service provided on-line using an algorithm.

    Independent financial advice is being delivered for as little as £100 per employer and with over 1.7m employers still to stage (in the initial cycle), there’s a major commercial opportunity.

    Organisations like True Potential that have harnassed digital technology are providing people with a way to save that suits everyone’s pocket. Moneyhub provides a financial dashboard for a couple of quid a month.

    I started advising in the early eighties and in the intervening thirty years I have seen precious little innovation among IFAs. Isn’t it time IFAs started adopting a different business model?

  5. What is disappointing is that well run and successful companies are paying the price of their success. Karl is correct that when you are fighting uncontrolled cost. Surely it is the responsibility of the directors of these companies. To ask the question Is it worth the risk for our employees client and protecting shareholder value

  6. Henry

    As I implied in my post, why would an IFA want to bother with the mass market, whn the better off and better informed value independence.

    As I have so often said: Robo advice is to financial services what a rubber dolly is to sex. It might work, is certainly cheaper, but it definitely isn’t the real thing. Would you really want to try it?

  7. As often posted on here before, it all depends the restriction that advisers place upon themselves. If the restriction is only certain types of business that the adviser does not wish to get involved in, it will make no to that adviser as he or she is unlikely to have used the removed business type for years (if ever). It therefore stands to reason that there will be little or no difference to 99.99% of his or her existing client bank. The referrals which come on board in time to come will not be affected either as they are likely to come from exiting clients. Like minded people and all that.
    So the only thing that matters is a business model works for the adviser. If that is restricted, fantastic. If it is IFA, superb but lets move on from the topic as it is starting to become very boring. There will be loads of business to remain profitable for both sides of the coin and the respective clients will be equally happy. Surely that is all that counts.

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