Rules around ‘independent' and ‘restricted' labels are confusing advisers, the FCA has admitted. Carmen Reichman finds out how to resolve the problem
What's in a name? Well, quite a lot when it comes to the advice market.
While the Financial Conduct Authority (FCA) thought it had made its position "reasonably clear", this week it admitted some advisers remained confused about what makes them independent or restricted.
However, FCA director of long-term savings & pensions Nick Poyntz-Wright said any renewed communication effort would effectively be "restating what we believe we've already said".
Independent vs restricted confusion persists
Speaking at a roundtable update on the Retail Distribution Review (RDR), he said: "We are hearing the confusion around what [restricted] actually means and some different interpretations, and we have made best efforts to be clear in all the conversations we've had but we have to recognise it doesn't seem to be completely working. So we are going to re-double our efforts in that area."
Following the RDR, 'independent' advisers were asked to advise on the whole product range that could be suitable for a client, rather than simply 'not be tied' to a provider.
This, advisers argued, meant that small firms would find it too hard to carry out the amount of research required, while suffering increased potential liabilities and professional indemnity costs.
However, many advisers still shy away from the label restricted for fear it is being perceived as tied to a provider.
And alternative labels created as a result, such as such as ‘restricted whole of market', were also a concern for the regulator as they could imply "something to the ordinary consumers that actually isn't necessarily the case".
Phil Billingham Partnership director Phil Billingham, suggested there was an "artificially heightened sense of confusion" around the issue, which was fuelled by nudges from product providers and other simplified discussions.
He said: "The marketplace in the UK is such that small specialist fairly well qualified IFA firms are very well capable of remaining independent if they want to. I don't think that's a problem for them."
The key is "sitting down and getting clarity about who they are, who their clients are and the business model they want to run," he added.
However, Billingham - a big advocate of independence - said the regulator could have done more to help, such as linking the actual label to the process of applying for permissions and making it clear on the register how firms operate.
DC&A Financial Planning managing director David Cathcart had to change his status to restricted as he refuses to advise on off-shore investments and structured products.
Being a one-adviser firm, DC&A would also have struggled to "constantly review every investment on the market", he said.
DC&A did not suffer any commercial detriment from being branded ‘restricted', but it did spend about £5,000 on re-branding from ‘IFA' to DC&A ‘Financial Planning'.
Cathcart said that although the definitions were clear to him, his clients did not really understand the name change as everything else about the firm had stayed the same.
"I just think the name ‘restricted' doesn't tell you what it is," Cathcart said, "independent and restricted doesn't fit what people are."
He added: "You've got an awful lot of advisers out there who really think they are IFAs because they have never worked any different to the way [they work now]. For those people I can understand their frustrations."
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