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Crunch time over independence as RDR deadline looms

by Michelle Abrego on Nov 20, 2012 at 11:45

Crunch time over independence as RDR deadline looms

One in 10 advisers has yet to decide whether they will be independent or restricted, as the retail distribution review (RDR) deadline looms, according to the Personal Finance Society’s (PFS) annual survey of members.

The survey of 1,500 advisers found 63% planned to remain independent, 14% would be restricted and 9% had not made up their minds. Of the remaining advisers, 7% said they planned to offer a mixed model with mainly independent advice, and 5% a mixed model with largely restricted advice.

Paul Lothian (pictured), co-director of Dundee-based Verus Wealth, said he could not say definitely he would be independent after 31 December 2012 because he was not clear about the Financial Services Authority’s definition.

‘There is still a lot of uncertainty. A lot of people don’t really understand what they have to do to remain independent and how onerous that might be,’ he said.

‘We expect to remain independent because we don’t plan to change what we’re doing. If what we’re currently doing by default means we become restricted, then we haven’t changed, the definition has.

‘We’re not so precious about the independent tag. We believe there are other differentiators that are much more important. It’s about professionalism, the quality of your service and your proposition.’

Keith Churchouse, director of Guildford-based Chapters Financial, said he would remain independent but expected the number of restricted advisers to rise after the RDR.

‘[The number of restricted advisers] might be about right in the initial [aftermath] of the RDR, but over the course of 2013 and 2014 the number of independents will continue to fall until 2015, when it will level off,’ he predicted.

The research also showed a correlation between highly qualified advisers and those who planned to remain independent, with 72% of advisers at advanced diploma level planning to retain the label.

Fay Goddard, chief executive of the PFS, said: ‘Having an advanced diploma, you would have done more study and demonstrated more evidence of competence on more esoteric investments [making the independent requirements more manageable].’

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22 comments so far. Why not have your say?

Mark M

Nov 20, 2012 at 12:19

I believe the article figures are a bit misleading. My understanding of the new rules is that it will be very difficult to be completely independent as the majority of the current IFA's (me included) advice procedures at the moment make them restricted. I plan to still give a full advice service but restrict the companies I deal with. I have the ability to add or remove companies as I need to but I believe that my client base trust the company that I recommend so I plan to select the ones that I feel offer stability, financial strength and the security to continue for years to come. I believe that if an experienced adviser feels he knows what is best for his client why should he have to cover an additional selection of products in his report or his advice that he is not going to recommend?

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David Cathcart

Nov 20, 2012 at 12:32

Nice plug from Fay Goddard there, but what an earth having the Advanced Dipolma has to do with whether you choose the Independent or Restricted is bit bewildering

There are a number of Chartered Financial Planners that are known to me, who have absolutly no idea how to run a financial services company, let alone have the business sense to make such a funemental decision on the future of their business.

Some of the most asute business people I know, have been forced or decided to quit the finacial services sector, which is a great loss to this professin of both experience and business knowhow and you know what, not one of them had the Advanced Dipolma. So in weird sort of twist Fay Goddard is right, no Advance Dipolma, no place for you my boy in financial services.

Funny enough I do not recall either Richard Branson or Alan Suger having MBA's.

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Well Now

Nov 20, 2012 at 12:41

So welcome all to the world of "Restricted Advice" that most have been in for years without admitting it to themselves or their clients.!

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Phil Bill

Nov 20, 2012 at 12:45

I know we keep repeating this, but the 'new' rules are very similar to the 'Old' rules in respect to being Independent.

There is no requirement to:

'Sell' every product type

Know about every product on the Market

List to clients the products you have considered and not used

What will work:


Clear Investment Philosophies and process and criteria

Use of technology to narrow the available market

Clarity of Investment and Client Proposition

Robust and wide CPD to maintain an overview and awareness of the market

90% of current IFA's can remain Independent if they choose. Some will choose not to, for commercial reasons. That is fine, but let's not pretend it's really for Regulatory reasons

I do accept that there has been a deal of confusion, some caused on purpose by interested parties, some by poor communication by the FSA.

But rI suggest we all read and understand the actual rules, not the rumours, and then make a commercial choice that works for you and your clients

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Mark M

Nov 20, 2012 at 12:52


Your comment that there is no requirement to "List to clients the products you have considered and not used" is misleading. It is exactly what the FSA have said. The requirement is that independence considers all options that are potentially correct for the relevant investor. Based on the need for correct TFC then you SHOULD make the client away of what you have looked at by including it in the suitability letter; how else with the regulator know you are doing the job properly??

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Phil Bill

Nov 20, 2012 at 13:38

Is this a rule?

Or is it that you / the network / compliance have decided to add it in?

Your call, but if not a rule, you cannot blame the FSA?

Can you show me the rule that states that you must list to clients the things you have considered but chosen not to recommend?

I think it's things like stakeholder and drawdown only?

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Mark M

Nov 20, 2012 at 13:52

I would like to believe you are right, but after 25 years in this industry I do not believe the regulator operates in that way. How would an IFA show to an FSA auditor that he is complying with his independent status if it is not through what is given to his clients??

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Christopher Petrie

Nov 20, 2012 at 16:00


I think the point is that you should indeed look at the Whole Market, but you don't have to re-cover the whole process on every client file....you should have an investment Proposition, written down, and available for inspection. It needs to be reviewed regularly and changes made as appropriate.

Your individual client recommendations can be made within that framework and reference made to the Investment Process within your Suitability Letter - but no need for the SL to quote the full Investment Proposition in full (which itself would run to several pages I expect).

Basically, investment panels and frameworks can be made at firm level, and client recommendations made within that - though of course tailored to each individual client etc etc.

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Sally W

Nov 20, 2012 at 16:00

Mark M, Maybe I am being dim, but I would just show the auditor my client specific research.

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Mark M

Nov 20, 2012 at 16:11

Yes but wouldn't the letter need to show what you had looked at and why you had discarded it?

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Tim Page

Nov 20, 2012 at 16:28

@ Mark M: Fight the fear and listen to Phil Bill.

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Sally W

Nov 20, 2012 at 16:31

Mark M

I don't believe the letter necessarily needs to include all of the detail unless there is something that the client should be particularly aware of. I admit it is a fine balance between what needs to be included and what you believe is just part of your research but I would not feel compelled to cover everything in the letter. It just makes the letter too long and would prevent the client from wanting to read it. Your question was, How would you demonstrate it to the FSA auditor, and my understanding is that this would be through a combination of correspondence to client and thorough notes on your file about knowing your client and good research. There has been criticism before about suitability leters being too long. I know it isn't easy but I think an auditor would look at your whole file to substantiate the recomendation.However, I have also heard today that even where an adviser could substantiate his 'know your client', provide a risk profile questionaire and show correspondence to the client about the risk the client was taking, the ombudsman still found in favour of the client because he said the client couldn't really be expected to understand the letter! This doesn't really give me much of an incentive to think that the letter therefore provides any protection really! Just keep your chin up and keep doing your best for the client.

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Nov 20, 2012 at 16:43

@ Mark M

I think the points you raise are valid and highlight the issues that continue to surround this matter.

@ Phil Bill – your points on this subject, as made on a previous blog, are noted. For the record my views are personal and not formed as a result of a compliance adviser, insurer, “vested interest”, etc – merely from the point of view of being potentially screwed by the disingenuous FSA over an, as yet, unexplained fund collapse. Once badly treated.....twice shy!

With regard to each SL I agree with the comments made here that it isn’t necessary to repeat your entire research and (de)selection process. However, the Investment Proposition, as CP states, is where I flounder as I cannot see how the rather simplistic proposed procedures, as rolled out on these blogs, can, in any way, be regarded as satisfying the FSA’s new definition of Independence.

To take the view that you have kept up to date, to a professional level, with current developments, intricacies of design, tax treatment, risk, etc, etc of the FULL range of investments that the FSA has included in its retail products list would seem well nigh impossible. Now, I know the reply is going to be that you don’t have to cover the full gamut if your client bank is of a certain type but this seems rather too much like putting the cart before the horse. The point of Independence is that you come at each client from the point of view of POTENTIALLY being able to recommend a very, very wide range of investments but, as a consequence of your cleverly thought out “Investment Proposition”, you can then dismiss most of the esoteric investments and just get on with the job as before.

This seems like utter nonsense!

How can you INITIALLY be in a position to recommend all and sundry to the next client that walks through the door if you haven’t kept abreast of all the many facets pertaining to the FULL range that the FSA has included in their list (including the requisite CPD) if you take the view that you can also simply dismiss said options, at a stroke, as they (probably) won't be suitable for most investors.

This looks like a whitewash and good luck with the FSA inquisitor when it comes to satisfying them that, if required, you could have recommended XYZ structured product or ABC VCT if the client’s circumstances had dictated they might have been appropriate at the point of the first meeting.

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Sally W

Nov 20, 2012 at 16:57


There is nothing in the rules about being independent that say you have to accept every client that walks through the door. If at a meeting you believe that,even as an independent adviser, you don't have enough knowledge in a specific area to advise them, you could choose to tell them that and not accept them as a client. Sometimes you recognise that a client's needs are very individual and outside of your usual expertise and you refer them on to someone else if you don't want to carry out all of the additional research and additional CPD. It is only where you hold yourself out to be an expert in an area that you are not that I think would lead you into hot water.

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Nov 20, 2012 at 17:09

Regarding the Independence debate (and it is still unfortunately a debate!), I really don't see how this is going to be a huge problem.

Regarding any UCIS/VCT type fund, my understanding is that these are only available to professional investors or clients who elect to be professional investors. If you client is a "retail" client (as the vast majority of mine are), then a line in the report stating "we have only considered investments that are available to retail investors", means that you don't have to consider UCIS (which the FSA are in the process of making a lot easier).

After that, surely the normal advice process direct you to the products you recommend.

Most clients will fall within a fairly standard risk profile and a "standardised panel" can work there as long as you have demonstrated it works well.

If the client wants something with "protection/guarantees/protected downside" and are completely happy with counter party risk and the potentially for "catastrophic loss", then you do some research on whatever structured products are out there at the time....if the client has a high attitude to risk and is looking at locking money away for 3 years and saving higher rate tax then you research whatever VCT's are currently available.

At the end of the day, if the "FSA Inquisitor" comes along and looks at your file and says "you need a bit more in to demonstrate independence", then you amend your practices. They are hardly going to start fining and banning people for this. Its if you start making inappropriate recommendations that your going to be in trouble.

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Nov 20, 2012 at 17:11

@ Sally W

Fair points.

The problem is I know my limitations...both in terms of expertise and hours in a day. I also have grave doubts as to the efficacy of some of the solutions promoted here to satisfy Independence.

It seeems to me that, if I have a particular set of clients in mind - those that could be satisfied by a "restricted model" (as, arguably most IFAs have been for donkeys years) why would I want to risk arguing the toss with the FSA that I was satisfying their definition of Independence. I could adopt the route you outlined above - which is indeed what I would do in the rare situations that someone wanted an off piste solution. But I don't need to be an Independent to be able to recognise such situations.

To attract new clients? Maybe. But I don't want any new clients - certainly not ones that are as pedantic as to dictate how I should do my job; don't advertise and have encountered absolutely no resistence, to date, from existing clients regarding the new moniker of Restricted that has been foisted upon us.

So...why bother?

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Jack via mobile

Nov 20, 2012 at 20:18

Why do you recommend Neil woodfords oeic income funds over his investment trust equivalents?

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Mark M

Nov 20, 2012 at 23:58

A variety of good points and an interesting debate. As mentioned in my first post I have decided that my company will give a wide spread of advice but hand select the providers. I'm not bothered about needing to use the 'Independent' name as I believe I will continue to attract new clients by giving a decent service that is targeted at my type of or client or I'll stick with the ones I have. I'm glad that as a 'restricted' adviser I can do what I've been doing for years.

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Richard Hardy

Nov 21, 2012 at 09:15

The FSA don't seem to see they have created a playing field soaked in treacle.

They are trying to control the weather. It cannot be done, there are too many variables.

When they put in place rules and restrictions, they have to create more rules and restrictions to counteract the original rules and restrictions which require more rules and restrictions and so on and so forth.

They forget to view the playing field from the point of view of the spectator, the consumer. The consumer is not interested in whether we are restricted, tied, independent, they want a job done.

Keep it simple, make everyone independent or tied to one provider only, like it used to be so consumers knew where they stood.

Mish mash doesn't work.

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Matthew Timmins

Nov 21, 2012 at 11:46

@ Dave and Phil Bill

Spot on!

You do not need to advise on ‘all types of products’ to be Independent. You need to be able to demonstrate a continued understanding of products that are appropriate for retail clients and when the need might arise for clients to be advised on them. You can then refer this away if you choose to do business in one particular area.

You can also use a firms advice standards to remove the need to advise on other, potentially toxic, products. For most other products, suitable for retail clients, advisers can use panels and research systems to reduce time and improve the quality of advice

The FSA are not trying to move the market to restricted advice! They are trying to improve the knowledge of other product structures and the ability to understand when these might be applicable for clients. The last thing we need is for firms to provide advice on esoteric and complex products in the belief that they need to do this to be Independent.

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Mark M

Nov 21, 2012 at 14:47

This probably just shows how ridicules the whole implementation of RDR is. I am not sure that Mathew is right; I believe that once you have established the clients risk profile you should then offer an overview of the products that match that profile and then explain why you have advised one over the other. The same, I believe, is also true for the provider.

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Phil Bill

Nov 21, 2012 at 21:08

Sorry Mark M, but that process is not the required one. But you do it your way, that's your choice. Just please don't assume that 'I believe' makes it an FSA rule

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