"To be able to provide independent advice, firms would need to make recommendations based on comprehensive and fair analysis of the relevant market, and to provide unbiased, unrestricted advice."
The debate between independent and restricted advice models is one that has gone on for many years.
Independent financial advisers (IFAs) have advice propositions covering most or all of the advice market, so products and services offered are researched from a wide range of, or all, providers before a suitable client solution is found.
All areas of advice must be covered by the IFA, or the IFA must have a referral partner for any specialist business they may not wish to conduct themselves - for example, long-term care or defined benefit transfers.
For their part, a restricted adviser will offer advice from a smaller shortlist of providers or products, or perhaps only one provider or product if the adviser is ‘tied'. This may also only cover a smaller segment of the market, with some products and services not provided. This advice is therefore not independent.
Independent financial advice is often implied to be the ‘gold standard' of advice - particularly by organisations such as Money Supermarket, Pension Wise or the Money Advice Service. Some bodies, such as the Solicitors Regulation Authority (SRA), will only refer clients to advisers who are independent, which may create the impression in a client's mind that independent advice is the only type of advice they should consider.
That said, there are many non-independent advice firms out there who are held in high esteem, especially by their clients. With so many options available to clients, we asked our members to consider the perceived difference between independent or restricted advice - specifically if they believe clients worry about whether an adviser is independent or restricted. The results?
This is the closest result we have ever had from any of our NMBA ‘quick vote' surveys. The respondents to the survey come from across the industry and include network members, vertically integrated firms, IFA firms, directly authorised firms and more, so this is a truly independent reflection of the thoughts among the profession.
All results are anonymous so it is impossible to tell whether those who are independent voted ‘yes', and those who are not voted ‘no' - although, from some of the additional comments received, we can deduce this is not an entirely correct hypothesis.
The most prominent theme in the comments is there is some uncertainty as to whether clients understand the difference between independent, restricted and tied advice models. The regulator sets out details of how firms must disclose their status - however, it is clear from the responses we received that there is concern many do not follow this process correctly, leaving clients unaware of the meaning behind the firm's status.
Others said that when clients ask if the firm is independent, what they actually mean is ‘Is the firm tied?' and are therefore under the impression only one provider or product will be available to them. A few raised concerns as to the transparency of some firms - for example, "Certain organisations appear to be independent, whereas in fact they are tied-agents or appointed representatives" - again reinforcing the question as to whether clients are aware of the difference.
Many respondents stated it ultimately comes down to the relationship the adviser has with the client - and it does not matter to the client whether the advice is independent. "Having been both independent and restricted, if clients like and trust you and know you have their best interests at heart - they will most likely follow you," as one person put it.
Others, of course, disagreed - for example, "When previously ‘restricted', a situation I was put in when my network went this way, I lost a considerable amount of business by not being independent. About £6,000 in fees and commission. Independent is a respected position to have."
It is clear this is a divisive subject, with some ‘staunchly independent' respondents who feel very strongly that independent advice is a client's priority, and others who are restricted commenting that a good advice outcome is ultimately all that matters, good outcomes can be given via restricted advice and that "as long as the client is at the heart of everything, the status of the firm shouldn't matter".
Tom Hegarty is managing director at The New Model Business Academy
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