An overwhelming majority of advisers, 87 per cent to be exact, have said they aim said to hold onto their ‘independent financial adviser’ label after the retail distribution review comes into effect.
But the reality may be that many of these advisers find that the burden of complying with RDR rules on defining their firms as independent are is simply too high.
For those advisers who do remain independent, one of the most significant requirements will be to consider the whole of the investment market when selecting products to fit their clients’ needs.
Many advisers’ current business models and investment selection techniques would see them classified as giving ‘restricted’ financial advice in the post-RDR world. Remaining independent will be a significant step up in the service they are offering and this will necessitate increased research.
The differences between restricted and independent financial advice
There is no definition of a restricted other than it is an advice model that is neither independent nor basic, the latter being advice restricted to stakeholder products recommended following a series of scripted questions.
Being independent gives you a much wider product universe for consideration.
The RDR specifies which retail investment products should be considered by an adviser that wants to retain the independent title. In addition to unit trusts and open-ended investment companies, these include national savings, structured products, investment trusts and exchange traded funds.
Indeed, the FSA has made it clear that advisers need to consider all retail investment products that are capable of meeting the needs of the client.
This is quite a commitment and it is possible that this is beyond the current capabilities of many IFAs unless they consider changing the way their firm operates, perhaps through outsourcing.
To remain independent, it is likely that many advisers will have to up their research to achieve whole of market coverage.
Restricted advice - business as usual?
By inference, a restricted adviser is one who does not have to follow the whole of market approach.
The adviser can limit themselves to the products of a single company, single group of companies or a limited group of companies.
The restricted adviser, free of the obligations of the independent label, can focus on the markets - and key providers within them - that will meet their needs and provide the maximum value to their clients.
Many firms may benefit from reconsidering whether accepting the ‘restricted’ definition could actually better serve their needs.
