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Why I went restricted: Three advisers share their stories

Some advisers are welded to independence but for others restricted status makes more sense. Three restricted advice firms share their experiences 

The one-man band 

Lowland Financial managing director Graeme Mitchell became restricted after he was advised that a one-man band would not be able to demonstrate true independence after the Retail Distribution Review.

“I took compliance advise and spoke to the FCA asking how feasible is it for a one-man band to demonstrate true independence across the board? The answer I got was that it cannot be done,” he says.

Mitchell had been a staunch supporter of independent advice for 30 years and admits that dropping his independent label after 22 years as an IFA ‘stuck in the throat a bit’.

Why aren’t advice firms combining independent with restricted services?

However, it has not hurt his business and has enabled him to focus on everything bar investment trusts, exchange-traded funds, unregulated investments and structured products.

“I don’t have enough hands-on practical knowledge in these areas and if I don’t understand them it’s pointless advising on them,” he says. “But I’m whole of market for everything else. I’m just doing what I did before. If I recognise a scenario where someone should be looking at tax-efficient investments I know enough to say I can help you to find someone else who can advise you on that.”

Mitchell points out that one downside to being restricted is that potential clients who are using the internet to search for ‘independent financial advisers’ would probably not find him. However, he is not overly concerned about this as most new business comes through referrals and people browsing the Lowland Financial website.

The national advice firm 

Hargreaves Lansdown hit the headlines in 2015 when it announced its advisory firm was going restricted. Some of the reaction was critical of the move, but other commentators recognised how it reflected what the firm was already doing in terms of using its in-house Vantage platform.

Hargreaves Lansdown head of communications Danny Cox says: ” When we decided to go restricted we did so for a number of reasons. The vast majority of people using it [the advice arm] were already Hargreaves Lansdown clients. They were already using our Vantage platform and wanted advice about their investments on this platform,” he says.

The march to independence: Will more big players ditch the restricted brand?

Under the independent definition, advice firms have to look at different platforms and choose the best one for the client, which could mean recommending different platforms for different clients. As Hargreaves Lansdown’s clients all wanted to use the in-house Vantage platform, this presented the firm with a challenge if they were to remain independent.

Another factor was that being independent requires firms to look at all product areas, even if it’s just so they can prove they are unsuitable for clients. As an independent adviser, Hargreaves Lansdown had been required to research product areas it didn’t recommend or believe in, such as enterprise investment schemes and structured products. Going restricted saved on the time spent researching, producing documents and compliance in those areas.

“The majority of national advice firms don’t offer independent advice,” says Cox. “We looked at the independent and restricted definitions – neither was perfect – but restricted was a better fit for us.”

Hargreaves clients would have seen no difference after the switch, says Cox. “They get advice as they always have done but it’s more efficient behind the scenes.”

Cox says advisers who are contemplating going restricted but are concerned that it would change what they offer, how they treat clients and how they give advice shouldn’t worry. “It hasn’t changed anything for us except making it easier for our advisers because they haven’t got to review products they would never recommend,” he says.

The network member 

Atrium Financial managing director Noor Uddin decided to go restricted with the advice network Intrinsic when he started his own firm last year. Uddin – previously an IFA at LEBC – did a lot of research before deciding which way Atrium would go. Although many would naturally opt for independence, Uddin kept an open mind from the start and says being restricted is not that different – he can choose from a panel that Intrinsic’s specialists have already selected from the whole of the market.

What does ‘restricted’ advice really mean nowadays?

“You’re not spending your time researching the market, which can be a scary place. I was impressed with Intrinsic’s restricted panel and the research is still being done but by specialists at a higher level, before you get to decide what your clients should go with, ” says Uddin.

Uddin has no problem telling clients he is a restricted adviser but says there needs to be a more detailed discussion around what it means. “I’ve never had anyone who comes through as a client and queries it. Some people do a bad job whether they are independent or not – I’ve had clients come to me on the back of bad advice from an IFA,” he says

Uddin’s advice to others contemplating the restricted route is to weigh up the pros and cons for their particular business, as what suits one firm doesn’t suit another. He says that although he joined a network to provide support, because he’d never run a business before, that has not influenced his decision to go restricted. “As long as I’m dealing with the right people, I’d always choose restricted,” he says.

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Graeme Mitchell was told that “…it cannot be done…” Oh yes it can. I remained independent after RDR and the Regulator was well aware of this – at face to face meetings and also through my Gabriel returns.

    As we all well know not everyone at the Regulator is well trained or really knows their topic inside out. (A recent call by me as a now member of the public had this graphically confirmed last week.)

    That HL is restricted is hardly a valid comparison as the majority of stockbrokers are also deemed to be restricted and of course they are (as is HL) their business is really not holistic financial advice.

    As to advisers who go restricted – in my view a combination of laziness and funk. Anything for an easy life.

    • In light of your entrenched view that no structured product can ever be suitable for anyone, you weren’t a WoM IFA in the truest sense Harry. Your standard dismissal of an entire class of products as unworthy of consideration wasn’t giving advice. Rather, it was ramming down your clients’ throats your blanket prejudice against them. Were you an omniscient expert on Investment Trusts, VCT’s, EIS’s, Business Property Relief schemes and all sorts of other only slightly off-piste products? I rather doubt it.

      One of my clients is averse to investing in anything other than structured deposit plans and every single one that she’s taken out through me has delivered the goods (handsomely), with virtually zero risk of capital loss. So please don’t preach to us that the only path to righteousness is to be a WoM IFA.

  2. Over the years I have been tied, multi-tied, independent and restricted. None of it really makes a jot of difference to the average consumer or the solution that is provided. That said I prefer the restricted space, it is tidy and honest and safe. An awful of lot of so called independents really are not, they use a restricted panel like everyone else, they just like to pretend otherwise. Bleat all you want it’s mostly true. What I really object to is the terminology. Restricted is demeaning and I don’t understand why we put up with it or why we must put up with it. Can you imagine a Consultant Cardiologist accepting the title restricted Doctor? I’d like to see the GMC try to get away with that one. What about Solicitors who specialise in one aspect of the law, I don’t see them being called restricted. Or Barristers, and QC’s most of whom are restricted in one form or another as they don’t cover all aspects of the Law. Restricted; Nah.
    OK you might argue that they have been there and become specialist and in many instances are higher qualified, at least RCF wise, but so are many restricted advisers, I myself am level seven. As I said, I have done them all, but prefer the panel solution currently labelled restricted and have built a sizeable business on the back of it, that does a lot of good. I would however prefer a nicer and fairer title. So why can’t I be called a Consulting Adviser, or a Specialised Adviser or whatever, anything is probably better than restricted. OK it might just be me but if any one wants to start a campaign to get this ghastly title changed, I’m in.

    • Roger,

      Your comments certainly made me think somewhat, a colleague of mine recently left the firm I work for and went restricted. My immediate thought was “why?”, but I have to say that I agree completely with your sentiment.

      I hate to be the first to say it but whilst SJP with their “commission” policy and “exit penalties” exist, I’m afraid that Restricted will always be seen as tarnished, the battle starts and stops there in my opinion.

      A level playing field deserves fairness from all parties. SJP are the vermin that drag the restricted advice route down sadly and whilst they are permitted to continue with their questionable tactics the playing field will always have a substantial slope on it sadly…..

      Good luck and I hope it continues to be successful, I’m certainly wiser for your comments!!

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