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In a restricted world is there still value in being independent?

by Danielle Levy on Jan 24, 2013 at 12:27

Nonetheless, Andrew highlights Close’s whole of market and unbiased approach to underlying fund selection. ‘If we did not have funds in our proposition, we might be able to argue we were independent. That seems an odd anomaly, so if there was an "RDR II" it would be interesting to see if that was addressed.

‘I don’t see the difference of having something that is wrapped in a fund or a model portfolio. It has the same risk-return profile and exactly the same securities holdings. What relevance does whether it has a tax wrapper around it have?’ he asks.

Nonetheless, the firm is pleased it did not change its proposition to avoid the restricted label, as this could prove short-termist and not in the spirit of the rules.

Simon Lough, chief executive at Heartwood – which will be restricted post-RDR as it has an internal multi-asset fund range – stands by the decision he made three years ago to not adapt the firm’s model to meet the rules, particularly following the SRA and ICAEW’s decision to allow restricted referrals.

‘This is exactly the view I took when I became CEO three years ago,’ he says. ‘I looked at this and felt it was not going to benefit our clients to be independent.’

While Lough is very positive about the principles underpinning the RDR – not least improved transparency and the removal of trail commission – he believes the FSA’s decision to change the basis of independence could prove a mistake as it is confusing for consumers.

However, he has been encouraged by comments made by Martin Wheatley, chief executive of the incoming Financial Conduct Authority, at a recent conference, telling investment managers they should not fear being restricted as clients would be aware of the services they require.

Regulatory interference

Regulation has driven consolidation, particularly on the back of increased regulatory costs and scrutiny, and caused some to change their models by moving into new markets or areas.

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4 comments so far. Why not have your say?

Alan Steel

Jan 24, 2013 at 16:48

If you were an investor , why would you settle for advice that was restricted ? Or am I missing something ? Mind you I'd rather settle for advice that was obviously in my best interest than from somebody competing with others to sell more of this and that !

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Gillian Cardy

Jan 27, 2013 at 10:40

How interesting : why did the headline writer not see fit to pose the question :

"In an Independent world is there value in being Restricted?"

As one of the consumers researched in one of the earliest documents at the start of RDR said : “Why would you go to [a non-independent adviser] when you can go to somebody who will search the whole market?”

We have moved on from the any colour as long it's black style of customer service proposition ... the 21st century is not a great time to say to people what they can and cannot have - determined by the supplier.

Anyway - discretionary services are not personal recommendations and outside the all of the RDR rules anyway ...

And if you claim to be in the personal financial advice space and decline to advise your clients on pensions or life policies (annuities / investment bonds) then I think most people would agree that this is a Restriction to the advice you give.

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Jan 27, 2013 at 18:52

Re the question posed : 'Why would you go to [a non-independent adviser] when you can go to somebody who will search the whole market?” Well, consumers do, and in droves - e.g. success of SJP- so maybe on balance process, governance, strong backing, size, and just maybe people want to deal with successful profitable firms with 'sales people' that motivate them to take action and make them feel good!

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Gillian Cardy

Jan 29, 2013 at 15:01

Which is precisely the evidence that suggests to the regulator that the status disclosure regime might not be working as well as it should - good process and good governance are not (or shouldn't be) the preserve of big companies - neither is success or profit.

Let's ask consumers if they want to deal with "sales people who make them feel good" ... personally I'd expect the results to be less than encouraging!!

Professional advisers with clients' interests at heart who tell them the truth even if it hurts might be somewhat more attractive as a proposition for a post-RDR world??

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