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Why is Aifa opening up to restricted option?

Regular readers of this column will not be surprised to read that I have been a member of a trade union all of my working life. I first joined as a teenager many years ago and continue to pay my monthly subs today.

The role of a trade union is relatively easy to understand. They are there to get higher wages for you if they can, to stop you being treated unfairly and to defend you if things go wrong. My union has helped me on one occasion in taking legal action to extract many thousands of pounds from a recalcitrant former client.

Trade associations such as Aifa, on the other hand, are much more nuanced in terms of what they are there to do. Ultimately, a trade association does not represent people who are bound together by the same or very similar working conditions, or pay rates.

So unlike Michael Johnson, a contributor to the Tory party’s economic competitiveness review, quoted in Money Marketing recently, we should not be surprised by the fact that the industry – and IFAs in particular – are “wallowing in vested interests”. That is entirely normal.

Aifa’s members pride themselves as being individuals and have their own special interests to protect and defend. After all, many are business rivals – co-operating one minute, yet plotting to how to beat their competitors the next.

In the case of IFAs, there are, of course, a lot of issues on which members share a common interest and should collaborate fully but there will be as many times when members disagree.

On the issue of the RDR, I have been surprised by the number of financial advisers who have contacted me to say they do not agree with what they perceive as Aifa’s stance on training and qualifications for financial advisers.

Which brings me on to the subject of Aifa’s paper, Advice Horizons, published recently. For any trade association where there are potentially conflicting interests, the task is that of seeing if these interests can be reconciled while accepting their obvious differences.

That, in my view, is what Advice Horizons tries to do and this ought to be recognised by those who have read it.

The problem lies not so much in what its 40-odd pages are trying to do but in the way that – by trying to offer catch-all solutions to its members – Aifa risks turning itself into a laughing stock.

Let us look at the positives first. Aifa is right to point IFAs to different fee models such as monthly retainers, time-costed fees or fees relative to assets under management.

It is also correct to point to various other options for IFAs, such as collaborating to create common back-office functions and even to separate elements of their businesses between restricted and non-restricted advice.

At the same time, to discuss foreign passporting as an option and simply refer to it as being a potentially “demanding” alternative to UK-based regulation is a cop-out. It is not just “demanding” but, in my view, unethical to take this route – in precisely the same way that the Prudential opted to be directly regulated by SIB in the 1990s – and Aifa should have been completely clear on this.

The biggest problem for me, however, is in Aifa’s discussion of the difference between independent and “restricted” financial advice. The paper, again rightly, describes genuine independence as the “gold standard”.

But it then says: “Until recently, restricted advice has been viewed with disdain by many IFAs but there is a growing view that constraining a firm’s activities, and in particular its business processes, can generate efficiencies and also open up the opportunities to partner or joint venture with manufacturers and fund management companies – creating new revenue streams.”

The paper then bizarrely claims the FSA’s definition of “restricted” does not lower the threshold for quality of professionalism or advisory standards. Well maybe not, but you can bet your bottom dollar that at least some of those former IFAs – and other salespeople operating in the “restricted” swamp will do so to abuse the system.

That is not just my opinion but also that of others, including Ernst & Young director of financial services Robert Wood, who told a recent conference: “An unintended consequence of the RDR is that product bias will increase as a result of high numbers becoming restricted. We could see a second round of bias returning to the market.”

It is hard not to conclude that a key reason why Aifa is openly discussing this option, and doing so in favourable terms, is because it believes that a significant element of its current membership will ditch genuine independence. If so, under Aifa’s existing operating model, the organisation would be financially devastated.

Which is why, compared with a very similar debate a few years ago over admitting multi-ties into membership, this time, Aifa does not appear to have any problems with allowing “restricted” advisers to remain in its ranks.

There is certainly a good argument to be had on this issue but until the minor matter of Aifa’s own long-term financial dependence on the fees of “restricted” advisers after 2012 is discussed openly, it will continue to be the elephant in the room that everyone knows is there but pretends not to see.

Nic Cicutti can be contacted at


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There are 21 comments at the moment, we would love to hear your opinion too.

  1. Perhaps they should change their name to Arfa.

  2. At least it has given you something else to bitch about.

  3. There is an argument that an individual, who describes him or herself and being Restricted, is being more honest than someone who claims to be whole of market and expert in ALL areas.

    Advisers and IFAs in particular might do better to promise less and deliver more.

    Given the choice between dealing with a jack of all trades and someone who has chosen to specialize I would opt for the specialist every time.

  4. In what way, please tell us Nic, is it unethical to secure authorisation from a non-UK regulator and passport back in to the UK?

    Perhaps you should try a stint as an IFA (which, to the best of my knowledge, you never have). That might give you some idea of what it’s like on this side of the fence, being charged ever escalating levies for ever more skewed, biased and unreasonable regulation whilst the banks are more or less allowed to get away with whatever they want.

    Eventually, more and more people are going to be deciding that they’re just not prepared to put up with this kind of treatment any more and if passporting is the way back to something approaching a reasonable life, then that’s the route we’ll take. When the last of us have finally escaped, the FSA/CPMA will have to start regulating the banks because there’ll be no IFA’s left to terrorise.

  5. Evan Owen - Nic Cicutti Appreciation Society 19th August 2010 at 1:55 pm

    Nic, you are on the ball yet again.

    If you really haven’t worked out why AIFA is “opening up to restricted option” I will tell you, all you need to do is ask.

  6. you sad little journalist

  7. I did write a fairly lengthy response, but once again lost the comments as MM seem to have a glitch in their system that if someone else is posting at teh sametime means when you click submit, it comes up with an error and everything you’ve typed is lost….
    I’m not going to retype the whole thing, so would refer people back to the RDR paper PS10/6 page 12 as my interpretation is that it si Independant and Resricted Advice and not Independant and Restricted Adviser so that as on page 18, an Independant Firm could provide streamlined and non advised services which would requrie issue of a “Restricted Advice” Key Features Doc.

  8. Monsieur Reynard 19th August 2010 at 8:19 pm

    “I’m a fully qualified financial adviser, offering a wide range of financial planning advice. I only deal with providers that I’ve assessed as financially stable, offering competitive products, a track record of delivering, and a strong customer focus. I’m not actually prevented from dealing with any provider, but I have a panel of those I’d prefer to deal with. If you have a need for a product that isn’t available from one of these providers then I can still source it for you.

    I can give you advice on your existing investments/policies/products. I’m not biased by commission, because product providers are not allowed to offer commission anymore, and I’m not allowed to accept it.

    Despite the FSA requiring me to describe myself as offering “restricted advice”, within the limitations I’ve described I’m still required to put your needs first”

    Tell me Mr Ciccutti, which part of this “restricted advice” proposition do you object to? The FSA has created the mess that is the RDR, and it’s very difficult to identify who is actually championing the whole initiative. Nevertheless adviser firms are perfectly entitled to adapt to continue to exist in the new environment and once they (and you) realise that “restricted” is not the same as “tied” I expect a significant shift in sentiment and these firms will need representation as well……

  9. RESTRICTED advice will beat independent advice as the option for most advisers. This is simply because it is almost impossible to prove independent and whole of market and the extra work involved defending independence together with the risk from increasingly litigious consumers supported by an unaccountable FOS will kill independence even if commercial constraints don’t. Now don’t tell me this is progress or that I’m a Luddite because this is an artificial regulatory intervention which will restrict consumer choice rather than advance it. Why therefore is it beyond the wit of journalists and consumers to see the unintended (or perhaps intended) consequences of allowing an already discredited regulator to continue with its RDR insanity?

  10. There is in my opinion a very great danger in accepting the terms of reference currently set out by the FSA arising from the RDR.

    No more so than in the two words (I see being far too readily adopted) namely that of “restricted advice”.

    Am I wrong in thinking that the RDR, and the FSA’s policy statements are to do with the “Distribution of retail investments” – and that the FSA have decided that it is on the range of products or markets available that independence or not is to be established?

    If so why then choose to adopt the phrases – independent or restricted “advice”, and not restricted range of “products or markets”?

    I am 100% certain that I will not be alone in having offered very detailed financial advice without a product ever being the end result, or ever envisaged as such.

    In those situations the “advice” given was in no way restricted, nor in my opinion should the FSA be allowed to incorrectly describe it as such.

  11. This is indeed insanity, is there any such thing as “Restricted Advice”, is advice just advice until it comes to a recommended solution which in the FSA’s blinkered view amounts to restricted solutions?

  12. @ 2nd anonymous: you really are a coward aren’t you? What’s the matter, do you only feel comfortable abusing people when you’ve hidden your name? What does that say about you?

    @ Julian: by “unethical” I was referring to Prudential’s decision to opt for SIB rather than Lautro or PIA authorisation, which allowed it to escape fines that would otherwise have been levied on it for mis-selling of financial products. Foreign passporting is the same, as far as I am concerned.

    @ M. Reynard: I believe that opting for restricted advice is a backward step for most if not all IFAs. INterestingly, my column quotes Aifa as saying that genuine independent advice is the gold standard for IFAs. Do you no longer agree with that?Oh, and spell my name right…

    @ phil: what makes you think I’m sad? I’m actually quite happy

    @ everyone else: the bottom line is that restricted advice is the option that allows preople to retain the status quo and to be paid for product sales and not for advice itself. Now that’s fine if you want that and I’m sure many of your clients will be happy to follow you down that route. It’s not ADVICE as the public understands it.

    And, most importantly, if that’s the route Aifa intends to go down then again no problem with me, as I was in favour of admitting tied agents into the trade body as long as they stayed in a different category. But at least Aifa should be honest enoygh to adnit that one huge reason for such a change is that otherwise it will end up financially devastated as IFAs all opt for RA.

  13. Yes you are right nic I am a coward.
    I am really fearful of so called journalists like you.
    I trust you no more than I trust the FSA.
    I used to trust in the rule of law but not now.

    About the only right I have left in this world is to remain anonymous, so I shall enjoy it before even that is taken from me.
    Good luck with your plans Julian.

  14. With the editor’s permission, a short story first, before my main comments.

    There was a journalist very well versed in all matters insurance related, as near expert as you could wish. He wrote under a pseudonym. He was extremely controversial, and drew the ire of many in the insurance world. One individual insurance broker in particular seemed destined to take the bait, and respond vigorously. sometimes in near demented fashion, to many of the articles.

    Few knew, and even fewer ever realised, that the irate insurance broker was in fact the very author of the articles.

    So fellow readers, when perhaps in this or any other column you witness the journalist and an “Anonymous” poster go at each other hammer and tongs, don’t always assume they are not one and the same person.

    Now to my main point, again over this seemingly widespread adoption of the phrase “restricted advice”.

    I hope Mr Cicutti (not in my spellchecker so personally checks spelling – again), you will not be averse to me using a comment of yours to illustrate the point I attempted, and perhaps failed, to make in my earlier post.

    You said ” … It’s not ADVICE as the public understands it.”

    Your post was written somewhat late on a Friday afternoon, you addressed more than one response to your article, so perhaps it was to be expected that your choice of words would not be perfect – none of us are. Me included.

    But when I read those words, it did seem as though you perhaps thought you were able to give voice, not to your own opinion, but to that of the public at large – and if I am honest, it did worry me even more that you chose to SHOUT in doing so.

    Now, for the avoidance of any doubt, I do genuinely think the former proposition is by far the more likely, but in the event that my opinion is incorrect …

    Well, put simply … may I offer this completely unrestricted, wholly independent advice.

    If by any chance you feel that you have indeed been appointed or chosen in some way to speak on behalf of the general public then it may be a symptom of an underlying medical or psychiatric condition for which you should perhaps seek treatment.

    Now as to what that treatment may entail, what drugs or products it may involve – sorry there I cannot help you. Please consult a suitably qualified doctor or psychiatrist. I fear in this instance my abilities would not match the difficulties over treatment that may be involved, and knowing what you don’t know is perhaps the most valuable of all knowledge.

    But please remember that not all doctors, even the most highly qualified, choose from every single medical product that can be found worldwide, some through experience limit their advice to the products and product manufacturers that have been tried and tested over time.

    Without digressing too far, you might also like to reflect on the fact that unlike the financial services industry with which you are well acquainted, you will find that there are few medicinal products or treatments allowed on the market, to be chosen and prescribed, until they have been rigorously tested and found not to be harmful to the public.

    Now is that an idea whose time might come for financial products? Nah, it’s a pipe dream, you would need an effective body to perform that function, and the short history of the last 20 or so years tells us very clearly that none such exists in the UK.

    Anyway, back to the point … I do hope you found this independent and unrestricted advice helpful.

    My fee? Nah, for you, it’s pro bono.

  15. @ 2nd anonymous: what’s cowardly is not the fact that you refuse to give your name. It might be the most tendentious kind of conspiracy theory to imply that you are “scared” of me and that I am no different from a regulator, but if that’s what you believe, along with the existence of fairies and pixies, then fair enough. No, what’s actually cowardly is that under the guise of anonymity you choose to insult me in a way that you wouldn’t dare to if you had to print your name. Deep down you know that too….

    @ Mike Fenwick: yes, my reply did say that “restricted advice” is not ADVICE as the public would understand it. I stand by that. Advice, to me, is something I might pay for either directly if no product sale takes place or by means of an agreed amount of remuneration otherwise, which may or may not come from the commission payment that emanates from the provider. To suggest that an IFA retains commission-paid status and then describes the process of what he or she does as “advice” is a much harder idea to sell to the public. YOU might be able to manage it, but most people will initially at least find such a definition hard to understand – as every survey about commissions has always suggested, for that matter.

    As for your implication that negative comments posted in response to my column might actually emanate from me, it’s easy for the moderator of this thread to check my IP address. If I were one and the same as the anonymous posters, I would be out of my job in a nano-second.

  16. Hi Nic … you veer far from my central point.

    Perhaps this will help:

    Note that whilst the term “restricted advice” is adopted by the FSA, the restrictions involved actually refer to products or markets.

    You are well aware that established case law on matters such as this can be decided by the inclusion or exclusion of as simple an object as a comma.

    As a skilled writer would you use the right adjective but with utterly the wrong noun – and thereby potentially misinform and mislead the public? I think not.

    Should a body such as the FSA do so – without question?

  17. Nic – Opting for “restricted advice”, is not an option of choice it is of neccessity. We work on adviser charging already and I’ll probably complete my DIP in time for January 2013. I would be very happy to be able to remain not only Independant of thought and action, but also in job title, but Mr Reynaud’s explanation of one’s status post 2012 is likely to be mine (thanks for that Mr R, you’ve saved me preparing my own speel for clients)
    Mike F – Has explained better than I could what I was trying to say about the Advice v product issue in the RDR papers and the fact an adviser can be Independant and yet give restricted advice to one client and Independent to another without having any tie whatsoever to a product provider.

  18. It is wrong Hector, very wrong.

  19. Red in tooth and claw. The return of Nic Cicutti, the meanest IFA hating hack the world has ever seen.

    I would never insult you anonymously Nic – wheres the fun in that?

  20. In 1995 we thought the world was going to end as I was a company representative for Allied Dunbar and there were all these nice IFAs running around saying they were fully independent. Clients like the word “independent” and given a level playing field will choose independent unless they have a trusted adviser relationship with their adviser, who could be tied. so what they say.
    Ithought independent/restricted advice was going to be the same problem all over again. Until I read the small print. Independence means you have tyo include every, but every alternative in your rationale. Even the most absurd, like chocolsate button futures on the chicago commodity exchange. Restricted advice is defined around the individual, not the advice itself. As most IFAs are not experts in every field and by definition cannot be seen as being independent anyway, what’s the problem? This actually lets one off level 4 if one is doing 90% protection and mortgage advice, contracting the investment/pension advice to a colleague who is happy to take the risk of a complaint on a well known sensitive area of advice as deemed by the FSA.
    my clients will know I am independent from 2013 onwards, because they trust me. The only stakeholder running this absurd charade that has created this debacle, is the FSA itself, who by their own admission don’t have confidence in RDR themselves. Well, we have only 2 years and a bit for the FSA to muster the courage to admit what expensive plonklers they have been. The idealists can then go and bother some other industry with their puritanical spoutings. My bet is that RDR will be quietly shelved in the next 2 years and all those courses and diplomas will be quietly ignored by the vast majority of IFAs who simply want to spend their lives adding value to their cistomers financial affairs.

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