We work in a sector that is particularly fond of labels. At the ABI’s Long-term savings conference this week, Joanne Segars visibly flinched when broadcaster Sarah Montague referred to the Money Advice Service as providing ‘advice’. She quickly put her straight – it offers ‘guidance’!
These definitions were set out by the then FSA in the RDR. Independent, restricted and tied advice have been used to try to define the different models of advice in this new, professional advice world.
When RDR was implemented, the term ‘restricted’ stuck in the craw of many advisers. Advisers flew the flag for independence. Restricted, it was argued, implied a more limited service. Independent financial advice was a quality stamp. ‘Independent’ re-assured the client that they were getting the breadth and depth of advice of a ‘whole of market’ approach.
In 2016, sentiment no longer runs as high as it did three years ago. The success of St James’ Place’s restricted model is undisputed and the Standard Life owned restricted adviser network 1825 has been snapping up high profile firms, including Baigrie Davies and Almary Green. Their proprietors have been vocal in the press that restricted does not denote a lesser service.
Restricted advice can encompass a range of different approaches. Restricted could mean that a firm is very nearly independent but uses one platform or DFM, or that the firm is tied to a small number of providers. The term ‘restricted’ doesn’t really give a clear steer.
With all the noise about the rise of ‘restricted’ advice, it would be easy to think that the advice sector is on an inexorable journey towards ‘restricted’ becoming the norm. But APFA data on the sources of income for advisers shows that whatever way the headwinds are blowing, income from restricted advice still makes up a relatively small percentage of total income. In 2015, 18% of adviser income came from restricted advice and 79% from independent advice.
The UK advice sector is also still relatively diverse, with the average number of advisers per firm at 4.53 in 2015. There are few truly national firms and many advisers still work in small advisory practices. It’s also fair to say that this is a sector full of entrepreneurs who have built up their own advice practices. And entrepreneurs famously don’t like constraints (or being told what to do…).
Compliance costs and the regulatory burden could be the tipping point. And this has certainly been the rationale used by some advisory bosses, justifying their decisions to join restricted networks. But counter models are emerging too. The Sense network is a network supporting advisers that want to remain independent with compliance and technology services. An adviser that we spoke to last week was a member of Sense. She felt that she needed the freedom to be truly responsive to her clients and that remaining independent provided her with this freedom.
There will always be a group of high quality, independent advisers running profitable businesses. But consolidation – and with it the promise of greater numbers of restricted advisers – will surely come.
But what about the investor in all of this speculation? Firstly, the labels restricted and independent are not helpful to clients. Does it matter to a client of St James’ Place that they are getting a ‘restricted’ service? Our suspicion is that if you asked a client of St James’ Place or Towry if they are receiving an ‘independent’ service, they would say yes.
We hear from advisers that often clients come through referrals from other professional services firms. This system is rooted in trust – the trust of the investor that their solicitor or accountant will make a good recommendation. What matters to investors is trust, service and ultimately, outcomes.
The late, great Victoria Wood once quipped: “Life’s not fair is it? Some of us drink champagne in the fast lane, and some of us eat our sandwiches by the loose chippings on the A597.”
Whilst advisers can’t guarantee a life of champagne and fast cars for their clients, the good ones, restricted or independent, can help them to secure a better financial future.
We will open Platforum 2016 with a panel session covering this debate and the future of the market. So join us on October 11th if you would like to quiz our panellists on this topic.
Finally, Platforum is currently running its quarterly adviser survey. Please click here to take the survey if you are a financial adviser and want to give us your views on the platforms that you use. All responses are anonymous and reported in aggregate but we do pass these results on to the platforms. You could win £200 of Amazon vouchers…