Independent. What’s in a Word?
Posted on:
07
Jun
2012
by James Farmer
Quite a lot, says IFA Centre’s Gillian Cardy. And a good thing too..
How times change. 25 years ago, we got to grips with the new concept of tied advisers disclosing that they only sold products from their own company. For those people, at that time, you couldn’t comment on products from another provider even if you knew about them. And if it was not “best advice” to sell them something from your own product range, clients were told to go and find an independent adviser instead.
There was no regulatory definition of an independent adviser in those days, of course, but the “i” word was still valuable enough for direct sales people to use – usually in the context of running their own “independent” businesses.
“Multi-ties” introduced a creative way to enable firms to advise on products from a limited range of providers, accepting that the best term assurance provider might not be the best personal pension provider (although whether they were indeed “best of breed” or merely commercial arrangements was never clear).
Later still, you could only describe yourself as an independent adviser if you offered clients a fee option to pay for their advice, while whole-of-market advisers continued working on commission only.
A Binary Choice
But here we are now with RDR around the corner, and it looks like the whole current miasma of tied, multi-tied, whole of market or independent will finally be replaced with a simple binary choice : Restricted or Independent.
The return to this simple distinction is reassuring. Either you’ll have ties, special deals, reduced ranges, favourable terms, contractual arrangements, limited research, or panels which prevent you advising clients on the full range of products and providers. Or you won’t.
Now, some people (not entirely without vested interests) suggest that Independence is no longer important to advisers or their clients. But review the websites of a number of advisory firms, and it’s stunning quite how many column inches firms devote to describing Independent Financial Advice and explaining why it’s important. I quote :
- “Independence is the only way you, the client, can get a truly objective view of your finances.”
- “It’s ‘altogether individual’. We create strategies tailored to client needs, using every possibility available. Independent in thought, in action, and independent of any product provider.”
- “Because all our advisers are independent … their advice is truly impartial.”
- “One size doesn’t fit all. Clients are individuals.”
- “The firm’s only allegiance is to the client, not to any product provider.”
- “IFAs only ever work in the client’s best interest.”
When you put it that way, why on earth would a client aspire to anything else? Well, the converse works as well. Let’s try turning all those grand statements round, inserting a few negatives, and then decide what would make those propositions appealing to clients?
Create a Restricted offering [in this way], and you have effectively decided that your clients, some of whom will face dramatic changes in their lives and finances, and some of whom you haven’t met yet, will never need advice on certain products or arrangements from certain providers. Quite simply, the client did not set the advice agenda. You did.
It’s simple to explain how Restricted advice is in the firm’s best interest (easier, cheaper, quicker, more profitable). But how can it be in a client’s best interest for advisers to have decided what solutions they will need, months or years before they walk through the door?
Independent advisers aren’t irrational or emotional, unsustainable or dinosaurs.
They have decided it cannot be in a client’s best interest to provide less tailored, less bespoke, less individual, less impartial, less objective, not Independent, Restricted advice. And, quite simply, their clients come first.
Gillian Cardy is the managing director of IFA Centre
Related Posts
-
Press your MPs to sign Arch cru Early Day Motion!George Galloway MP has today tabled an Early Day Motion on the failure of the Arch cru funds. Early Day Motions (EDMs) a... Read more
-
New Era, New Strategies – Why Should You Attend?“New Era, New Strategies – Equipping Advisers for A Profitable Future” Bristol, Aztec West Hotel 8th May 2013 8:30... Read more
-
Arch cru claims website launchedIFA Centre and Harcus Sinclair have today announced the launch of www.archcruclaims.org This site has been designed spec... Read more
-
-
-
-
-
-
-
-
-
-
http://www.ifacentre.org.uk
Some observations if I may :
1. there are enough companies paying to play, and doing it while they still can, that it is dangerous to assert that it is only the Independent adviser whose decision making process is influenced by “marketing activities”, “training activities”, or more coarsely, cash.
2. if a Restricted firm (remember this is at firm and recommendation level and not an individual adviser status) is one which has made its own choice of which products and / or providers best suit their clients’ requirements then I can see how you might argue that this is good for the client (though still argue that you cannot possibly do this reliably in advance of meeting someone for the first time). However, this ignores the reality of how the bulk of those who have come out with their Restricted proposition are going to do it … think single tie / direct sales firms – their product range is the one on offer, not “the best for the client”, think Sesame restricted model – a handful of life companies and a handful of in house funds, think Sanlam / Buckles- in house funds and an upgrade to Independent advice if what’s in the toolbox doesn’t work.
3. There will be Independent and Restricted – specialist may fall into either depending on how focused you are and what other areas you will consider for your client. The obvious case is stockbrokers being labelled as Restricted because they “only” advise on investments – if they are not reviewing, considering or advising their clients on anything even as mainstream as a pension then their advice is indeed restricted. And clients deserve to know that and to make their choices accordingly.
4. As my husband is a Lieutenant Commander in the Royal Navy I reserve the right to “naval gaze” – navel gazing is however, less appealing
You are assuming of course that the “independent” advisor is truly independent and not recommending investments of whoever is buying him/her lunch today or providing sales support in whatever form that may take (say that has never happened and you are a bigger fool than the clients who have been seduced by this folly).
In practical terms, if an “independent” advisor was to make a truly independent recommendation on a collective fund investment (discounting individual shares or fixed interest investments because they aren’t licensed / qualified to give an informed opinion on these – so are they truly independent…) an advisor would need to “fully research” the makeup, history, management (bearing in mind the huge percentage of fund managers who change jobs every year and can have a massive impact on the suitability of the fund), risk profile of every fund available to the retail investor from anywhere in the world. If it took 1 minute to achieve this and the advisor never slept or lost concentration for a split second, 10,000 funds would require 6.94days of 24hour research…”and that is why I am recommending XYZ fund for your ISA Mr/s client…..
Get real! The “independent” label is a fallacy and always was.
OffPiste, I think you’re probably taking a reasonable argument to an exaggerated and unreasonable level. The idea that an independent adviser might be taking backhanders from fund providers is a bit paranoid, and a bit of an insult to the profession actually. And kickbacks will become a practical impossibility anyway as soon as RDR eliminates the commission principle.
Yes, it’s perfectly true, as you say, that it would take you six days of 24 hour work to research 10,000 funds @ 1 minute each, and that this wouldn’t be feasible in practice. In much the same way that you’d have to drive your car at 1 mph to be perfectly sure that you didn’t hit any bunny rabbits who happened to jump out in front of you without warning. That’s about the level of the exaggeration that’s going on here. It isn’t a realistic expectation.
In practice, you’d employ time-saving short cuts like using your eyes and your common sense, and useful cues such as the fact that the Zowie Hyperleveraged M&A Fund wasn’t the sort of thing you should be investigating at all if your client was a little old lady with few savings. And rightly so.
But most of all you’d be using the fast and efficient technology that comes with any platform. Risk assessment is improving steadily, too, and the tighter statutory risk classifications for funds have gone a long way toward reducing the scope for error.
So what happens if all these safety nets fail? At the end of the day, the final clincher is the fact that the regulator can hold the adviser responsible for any very wrong actions. And if any of us is demanding that every single adviser should select the very best-performing fund in every instance, perhaps we should consider what would happen if that was what we did?
Each and every adviser would select the same league-topping fund, and no-one would recommend anything else, and the ensuing supply-and-demand crisis in that fund would be intolerable.
It isn’t going to happen, because the world is a more reasonable place than is being suggested here. The adviser needs to prove himself competent, hardworking and honest – not some sort of superman.
Whoops, apologies for the endless length of my last post. My paragraph marks got lost in the machine somehow….
How then is a “restricted” advisor worth less than an “independent” advisor? This is a decision that the “hardworking and honest” individual has made “independently” as an assessment that their client’s interest are being best served by what is on offer in a “restricted” environment, based on an honest acknowledgement of their limitations and the value of what the “restricted” option can provide for the client.
This naval gazing has the danger of losing sight of what is most important in the whole process, namely helping the client achieve their goals, whatever they may be.
Investments are not the goal, they are just tools in the process and many tools will achieve the same objective in the hands of a skilled craftsman.
It is the craft that is the critical difference not the choice of tools.
Everything you say is right, but surely, the point is that the Independent adviser has more options available to suit client needs than the restricted adviser?
What good is choice if you lack the capacity to exercise it?
At least advisers will have the chance to make up their own mind on the most suitable route for them and their existing clients. However the practicality for some may well be that restricted is a more viable business proposition.
There is of course the potential of being a specialist, this restriction can surely be a positive and aid quality advice, and you can still call yourself independent. Independent, restricted or specialist there is a Market out there for all. It is the duty of all however to ensure that disclosure is clear.
The line between “specialist” and “restricted” is not valid because the “specialist” is restricted by choice as is the “restricted” advisor who elects to use fewer tools and master them.
These and the “independent” labels serve only to confuse clients and does not treat them fairly – why should clients need to navigate through this fog of misinformation which only achieves the objective of disguising incompetence through misdirection.
A workable solution could be to focus on skill and the ability to provide effective advice with a grading system of sorts which can also be used to justify charges.
Is this system not already in place with the current qualification and CPD requirements? We just need to educate and promote this!
Some observations if I may :
1. there are enough companies paying to play, and doing it while they still can, that it is dangerous to assert that it is only the Independent adviser whose decision making process is influenced by “marketing activities”, “training activities”, or more coarsely, cash.
2. if a Restricted firm (remember this is at firm and recommendation level and not an individual adviser status) is one which has made its own choice of which products and / or providers best suit their clients’ requirements then I can see how you might argue that this is good for the client (though still argue that you cannot possibly do this reliably in advance of meeting someone for the first time). However, this ignores the reality of how the bulk of those who have come out with their Restricted proposition are going to do it … think single tie / direct sales firms – their product range is the one on offer, not “the best for the client”, think Sesame restricted model – a handful of life companies and a handful of in house funds, think Sanlam / Buckles- in house funds and an upgrade to Independent advice if what’s in the toolbox doesn’t work.
3. There will be Independent and Restricted – specialist may fall into either depending on how focused you are and what other areas you will consider for your client. The obvious case is stockbrokers being labelled as Restricted because they “only” advise on investments – if they are not reviewing, considering or advising their clients on anything even as mainstream as a pension then their advice is indeed restricted. And clients deserve to know that and to make their choices accordingly.
4. As my husband is a Lieutenant Commander in the Royal Navy I reserve the right to “naval gaze” – navel gazing is however, less appealing