The Skandia CEO says although the term restricted advice carries negative connotations, it could be the predominant model of advice in five years' time.
In my view, the word ‘restricted' is a particularly poor way to convey the reality of the type of advice proposition it is trying to describe. The term itself has negative connotations.
It can be taken to imply that a restricted adviser will only be able to recommend products from one provider or one fund group. The fact is however, that a financial adviser will be able to recommend all investments apart from the most obscure hedge funds and still technically be classed as ‘restricted'.
Given this lack of clarity around the definition, it is not surprising that so many financial advisers have stated their intention to remain ‘independent'. However, I suspect that over time it will become clear that the needs of a high proportion of customers can perfectly well be served by a restricted model. And in five years time we may well see that this is how the majority of people receive financial advice.
One of the biggest problems with the label "restricted advice" is that it suggests something that's of less value than the alternative - "independent advice". But in reality all advisers will be under the same obligation to demonstrate the appropriateness of their advice and act in the best interests of their clients.
Although COBS rules mandate the use of the terms ‘restricted advice' or ‘independent advice' in client disclosures, they also require advisers to explain clearly to clients exactly what that means in terms of the services they offer. This provides an opportunity for any potential misapprehensions to be cleared up.
I expect that most advisers will also choose - quite rightly
- to highlight their professional qualifications. A Chartered Financial Planner for example could be either independent or restricted. From a customer's perspective it is probably the ‘Chartered' status that will become more significant than their restricted or independent label.
When I was an adviser, what my customers wanted to hear me say was: "I have chosen...." The important thing from a client perspective is that their adviser has researched the market for a product that suits their needs and made a recommendation.
Let's face it, most investors do not require access to the whole of the market. They want a well thought through financial plan, which takes best advantage of their tax allowances and gives them an investment solution that matches their individual needs. To meet the majority of these needs, advisers will need to be able to select from a wide range of investments - but not necessarily the whole market.
Many advisers I have spoken to see a future where the same advice company provides both independent and restricted advice to different customer segments.
Ultimately the split between how much business is written on a restricted basis compared to an independent basis will be driven by customer demand. That's why I suspect that, although independent advice will initially be the dominant route chosen by advisers, as customer demand prevails - and the practicalities and costs of providing independent advice post-RDR become fully clear - we will see a significant shift towards a world where the majority of advised business is technically classified as ‘restricted'.
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