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View the article online at http://citywire.co.uk/wealth-manager/article/a653376

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

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

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

One of the most profound consequences of the retail distribution review (RDR) has been the FSA’s decision to redefine the independent standard in financial advice.

This has meant many wealth management firms are now grappling with the realities of having to take on the ‘restricted’ label.

Under RDR rules, private client investment companies that do not offer life policies and pensions – which now fall under the FSA’s definition of retail investment products – will not be permitted to describe their services as independent. Similarly, firms that use models and internal multi-asset funds that do not cover all retail investment products might also struggle to meet the new requirements.

Even businesses that have in-house financial planning capabilities and can cover the whole range of retail investment products could still fall short of the rules, as the person in charge of the process of giving advice must cover the whole range of retail investment products, even though they are unbiased and extensive in what they do cover.

Vestra is one business that has faced this dilemma. The firm offers investment management and financial planning services and can cover all of the relevant areas to meet the new independent standard, as its process entails multiple advisers or specialists dealing with the client, rather than one person with overall responsibility for the totality of the advice.

Yet it has reluctantly opted for what founder David Scott describes as a ‘cautious interpretation of the guidance’.

‘We have no choice, as we see it, but to be restricted,’ he says.

Nonetheless, Scott says choosing not to change Vestra’s process to meet the rules is the right decision.

‘We believe one person cannot have the knowledge to do this; indeed, we offer the two services of portfolio management and wealth planning as separate services. The client can then decide whether they want one or both. A combination of wealth planning and portfolio management will ensure that the entire market is covered,’ Scott says.

Vestra is not alone. Wealth management companies across the piste from the national firms through to the boutiques will now be labelled restricted under the new rules. They include Brewin Dolphin, Quilter, Rathbones, Close Brothers Asset Management and well known boutiques such as Cheviot and Berry Asset Management. 

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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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Wizdon

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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