Some view the FSA's 'restricted' label as the new name for tied or multi-tied advice. They're wrong, says Tenet distribution and development director Keith Richards.
As part of the RDR requirements, from 1 January 2013, all firms must describe their services as either independent or restricted.
However, misunderstanding of the definitions is fuelling confusion amongst the sector, which is equally not helped by emotional comment.
The proposed new standard for independence includes widening the range of products by creating a newly-defined and wider category of ‘retail investment products'.
This will mean firms that provide independent investment advice to retail clients will be expected to consider more than just packaged products for their clients.
For advisers to classify themselves as independent therefore, it may become more challenging than currently appreciated, due to both the breadth of knowledge required and the demand of maintaining and demonstrating competency in the more specialist advice areas.
Putting the highly emotive terminology aside, IFAs who only advise on packaged products will still be able to offer the same service under the restricted advice banner.
Whilst restricted advice does not sound very client-centric, in reality a significant number of advisers in the market would currently fall into the restricted advice category, if the new definitions were implemented today.
Yet, in our own experience there is still a very sizeable gap between adviser aspirations, with only 3% of respondents to our annual client survey foreseeing themselves as restricted advisers post RDR or 22% considering either the restricted or independent route.
In the confusion and emotion that surrounds this subject, it is understandable that the majority of IFAs would have a preference to continue with the title of independent, especially as it has become a recognised brand that they can trade on.
However, much depends upon the FSA's stance and whether or not their position on the current definition will continue to soften. Many IFAs simply understand the qualifying factors as: adopting adviser charging, achieving QCF Level 4 and increasing their scope of advice without necessarily understanding what the latter fully entails.
You have to also bear in mind that QCF Level 4 and adviser charging applies to the restricted channel, so many would not see any benefit in choosing this route over independent.
So what does the restricted advice channel really offer? It is important to understand that ‘restricted' does not necessarily equate to tied or multi-tied, as advisers will still be able to advise against a whole of market range within this channel.
The definition of independence has widened to make the independent label harder to retain, when compared to the range of advice offered by many IFA's today.
It is true that tied agents and bancassurers will fall under the same restricted advice channel and some advisers could be concerned about how they differentiate the wider service they offer.
I am not convinced that consumers really understand the difference between tied, multi-tied and independent. Many tied advisers carry a title of financial adviser, wealth manager or financial consultant? It is, as it always has been, in the explanation of services offered.
Under the restricted advice channel, a firm must orally disclose that they offer restricted advice and vitally, the nature of that restriction. Consumers will then make the choice to buy into the proposition offered or not.
Independent or restricted, it is important that advisers understand the definitions and requirements to make an informed rather than an emotional choice.
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