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David Ingram, former director of Threesixty has argued the Financial Services Authority (FSA) will have trouble distinguishing IFAs who are independent and those marketing themselves as such after the retail distribution review (RDR).
Ingram has claimed there is a substantial proportion of IFAs wishing to market themselves as independent after the RDR but who are not willing consider a full range of retail investment products.
Research from consultancy firm Aim Two Three, which Ingram is a partner of, showed that of 462 IFA respondents 89% of existing IFAs planned to continue marketing themselves as independent, but only 49% have considered recommending unregulated collective investment schemes (Ucis) over the last year.
Ingram said: 'The only answer acceptable from a firm that plans to stay independent is that they would consider recommending Ucis, venture capitalist trusts and investment trusts in appropriate circumstances.
'However, it is hard to see how the FSA will pick up on this until some sort of relevant exam is introduced and made compulsory. Only client complaints would seem likely to expose a firm as falsely describing itself as independent. I would expect some sort of mystery shopping exercises once the RDR is in place.'
About 17% of advisers questioned said that they did not consider Ucis or similar investments due to insufficient knowledge of such investments, 14.4% said they carry to much risk, and about 5.3% said the investments are too complex for their clients.
Advisers also admitted to not having professional indemnity cover for Ucis, with 5.7% citing that as a reason for not recommending them to clients, something the FSA recently flagged as a priority to advisers considering staying independent.
Other reasons for not looking at Ucis included being a member of network that does not permit advice on such investments at 1.3%.
The research also found that 33.6% of those surveyed would never consider venture capital trusts for their clients while 28.6% would never consider investment trusts.
Comments (42)
Any chance we could be told something new?
RDR will only make it make it 'compulsary' to consider things like UCIS (unless they can use the blanket exemption) - but surely, advisers (both tied or IFA) have always considered the wider product world?
It's not as if VCT, EIS, Film Schemes or UCIS have just been created for the post RDR world!!!
11:35 on 22 February 2012
Expose them ! False IFAs !
Now what sort of exam would that be ? A lie detector perhaps ?
11:37 on 22 February 2012
Good article David. The sooner many IFA's realise they can actually offer a valued sevice to their clients and be restricted the better. I dont think clients place the value on independence that many IFA's think they do. There will always be a market for true indendent advice but restricted doesnt have to mean tied to one provider. I would bet that a significant number of IFA's are currently 'restricted' and still offer an excellent service to their clients. They just need to have a well thought out business model and be able to explain that although they will be labelled as restricted post RDR this doent really change anything and doesnt mean a drop in the quality of the service. How the FSA polcie it is an interesting one though.
11:44 on 22 February 2012
We consider all sorts of things & in our considered opinion very few are right for 99.9% of clients.
11:44 on 22 February 2012
Is this any different to now I constantly come across "advisers" who have no qualifications at all not to mention advice given in the press
I am sure that the general public do not understand the distinction between tied and independent today so why will RDR make a difference ?
11:55 on 22 February 2012
Many of them will not consider staking everything on "lucky star" in the 3.30 at Haydock Park.
Presumably these are IFA s who never got a senior role with Equitable Life.
12:00 on 22 February 2012
If a lack of knowledge prevents an IFA recommending UCIS, VCT's, structured products, or any other 'specialist' investment, then probably a good thing they aren't being recommended!
However, ignorance of how something works and how something may (or may not) be of benefit to a client is not a valid excuse.
I fail to see how an IFA can describe themselves as independent if they cannot make recommendations from a full and unrestricted product set.
12:00 on 22 February 2012
@Pat
Are your reading Modern Portfolio Theory of course Haydock makes sense you just have to diversify and put a bet on all the horses in the race
Try this book
http://www.amazon.co.uk/s/?ie=UTF8&keywords=debunking+economics&tag=googhydr-21&index=aps&hvadid=8915258073&ref=pd_sl_20a61e7wv4_b
12:11 on 22 February 2012
I don't think that to be independent you'll actually have to demonstrate that you have an in depth knowledge of every VCT, UCIS, EIS, etc on the market, merely that you understand how they work and the risks involved. This information is readily available from the study material through which I'm labouring at the moment.
For the very few clients who say Yes, I really like the sound of, say, a VCT, will you be compromising your independent status if you refer them on to a specialist colleague? I don't think even the FSA is oblivious to the adage that a jack-of-all-trades cannot be a master of any. Then again.........
12:15 on 22 February 2012
Interesting but factually incorrect. The new rules require IFAs to conduct a FAIR analysis of the RELEVANT Market……
Therefore if you consider that UCISs are not appropriate for most of your retail clients then you do not need to consider them every time you make a recommendation.
Would everyone please stop trying to scaremonger and imply that it will be difficult to remain IFA post RDR please. as long as you have access to good research tools and a good compliance adviser then this should be well within everyone’s reach. If you want to be restricted then fine also but do so out of choice and what is best for your business and clients. Remaining IFA post RDR will not be as difficult as those with vested interests will have you believe. Remember FAIR analysis and RELEVANT Market.
12:25 on 22 February 2012
but if you are a compliance consultancy isn't "scaremongering" what you do to drum up business?
quite amusing in a world where the FSA has told us to beware what we believe from these people and if they advise us wrongly it is still our fault and we should have known better ;-)
12:37 on 22 February 2012
Matthew - I agree that how advisers segment their clients is absolutely key. I think the actual requirement to be indepenent is 'a comprehensive and fair analysis of the relevant market, and to provide unbiased, unrestricted advice'
12:40 on 22 February 2012
Spot on Julian!
12:47 on 22 February 2012
To remain independent, IFAs have to have the competence (exams plus CPD) and capacity to advise on all retail investment products. For individual clients that means reviewing all of the products within the relevant market (i.e. those capable of meeting the client's needs). Products such as UCIS, VCTs can be excluded from that search on the basis that they are unsuitable for the majority of the adviser's clients provided that the adviser can recognise clients for whom they are suitable (a simple exercise based upon the amount to be invested and the experience of the investor).
As Matt has said, access to a good compliance consultant or Network and access to good research on UCIS, VCTs etc will enable the overwhelming majority of IFAs to stay independent.
If "restricted" works for you fine but I strongly believe that IFA is achievable without the huge effort implied by some. The big Networks who are peddling the "restricted" story are doing so solely because they want to corral advisers into multi-ties.
12:50 on 22 February 2012
Hi Sam, yes it is - it seems we are in absolute agreement! how you clasify your retail clients and what you propose is the relevant market for them is key. e.g. most retail clients would expect that the products they invest in would be covered by the UK compensation scheme. this then cuts out a load of unwanted research on complex products. Graham, you are partly correct, some do and some dont. it is up to you to seek out the good guys! Matt
12:51 on 22 February 2012
Well said Steve. solid research, good compliance and robust and repeatable investment processes will ensure those that want to stay independent can do so without all the hassle implied by those who want to create multi ties for their benefit alone.
12:53 on 22 February 2012
I agree with the majority of whats been said. However why should you consider recommending a product(s) if all or almost all of your clients are not suitable for these eg the majority of my client bank are elderly or at least 60 plus- therefore are you saying that because I dont consider these products I am not being independent, in addition what would would happen if I did recommend them because I did think they were suitable and then went pear-shaped.
In summary I think that it is highly unlikely that I will receive a complaint against me for not recommending them!!
I think that it would be best to know about them and, as said earlier recommend a specialist to deal with these if required, similiar to G60 IFA's
12:55 on 22 February 2012
Alan - you don't need to consider these products for most of your clients but you do need to make sure that you can recognise a client for whom they might be suitable and, if suitable, recommend UCIS, VCT or ETFs for them. Don't let anyone tell you that its too hard and you should give up your independence.
13:00 on 22 February 2012
Spot on Julian.
A Doc who is a GP refers patients to the specialists in different areas. Does that make him any less of a Doc?
Surely it is a sign of professionalism to accept that you may not be an expert in a specific area and refer it to someone who is, rather than pretending that we know everything about everything.
13:01 on 22 February 2012
Didnt see the earlier post from Steve Young
Couldnt have said it any better-use common sense , avoid and dont be taken in by scaremongering and have tried , tested and robust procedures for knowing your client and finaaly access to reliable unbiased research
Great post!!!
13:04 on 22 February 2012
It i snot the considering itself that is the problem - as should be well known by now. It is the 'understanding how they work' piece. And an IFA who does not understand how all RIPs work will not, technically, be an IFA in 2013 unless he/she changes that very quickly.
No vested interest here I'm afraid so don't discount this on those grounds.
13:05 on 22 February 2012
Hi folks
Is this a first that Ifa's are in agreement!!!!!!!
13:07 on 22 February 2012
I am very surprised how many seem to equate " independence " with products and I include the FSA.
In our business our only interest is what is good for our clients and by their very nature products are first and foremost designed with the provider in mind.
Clearly the constant lobbying by vested interests has brought about this current " new definition " of an established word but that doesn,t make it in least correct.
Whatever anyone says be they regulator or whatever we will continue to act in our independent way on behalf of our clients which at the moment very rarely involves packaged products of any description.
14:17 on 22 February 2012
For what its worth in this debate, I attended a seminar in Leeds this morning on the subject of EIS's and VCT's in order to get to grips with these products in light of the prespect of being independent in the new world. I was amazed and embarrased for the excellent presenter to find I was the only one who bothered to turn up. The Manchester gig was cancelled due to lack of interest. Do I assume that most IFA's have sufficient knowledge of these Investments or that most will become restricted post RDR?
14:43 on 22 February 2012
A lot of IFA's recommend a wrap platform for all their clients and only use one platform, so excuse me for asking but how is that independent advice. RDR will not change this. Is a wrap really suitable for all? So under RDR they would be restricted but I bet they are not.
14:54 on 22 February 2012
It's clear that it is in some people's interests for many IFAs to give up being independent. What the FSAs definition of independence means is that you need to have a reasoned opinion about all of these products, and you have to write that opinion down.
I think most IFAs already consider all retail investment products for each and every client, and some other unregulated stuff (deposit accounts etc), but they just havent written down their opinion about the main product groups.
UCIS arent a product group - they are just a group of different products which arent regulated. You can hardly group the M&G Offshore High Yield Bond fund (which just buys units in the onshore fund) with a geared overseas property development fund.
Compliance consultants have to learn to market themselves responsibly - perhaps their marketing needs to follow the same rules as Financial Promotions.
15:00 on 22 February 2012
Sharon - advising on one or a small mumber of platforms or providers i nt an issue - its how you get to that decisionthat is key - as long as you have carried out comprehensive and fair analysis or the relevant market etc and segemented your clients you may be able to justifty that one platform is suitable for all your clients and therefore you can still be independent.
15:05 on 22 February 2012
@ Sharon,
We let prospective clients and indeed our existing clients decide whether our business model is for them and yes we do everything in one way and on one wrap.
We just accept that what we do may not be for everyone but try very hard to provide enough information for them to make a judgement.
At least our business is independent of influence from industry third parties and tends only to respond to the needs of its clients.
15:20 on 22 February 2012
A fascinating and largely constructive thread.
Good stuff from Mr Timmins and Sam Matthews.
Philip is, as ever, Wise in his advice to look out for the vested interests encouraging people to go restricted.
If you are looking for more information on how to say independent, you may be interest in my tuppenceworth: http://www.pagerussell.co.uk/whitepaper/
15:35 on 22 February 2012
@ phil melville
i agree philip,,if you tell the client what you do,,how you do it,,and who you do it with,,how much its going to cost ,and why. what is the problem. if the client likes your proposition and thinks it is value for money,they can decide to give thier business to you or seek out another adviser/firm they feel more comfortable with.
its called freedom of choice,,freedom of how you want to run your business and freedom for the clients to choose to do business with you.
whether tied,multi-tied or independant,if full disclosure is in place,let the client make the decision.it is a free country after all. (allegedly)
16:09 on 22 February 2012
Phil Meville and Philip Spierling - I agree and think you make great arguments as as to why restricted is a very viable way forward - as long as your clients are happy with your service then the restricted label shouldnt be a barrier. However if you want to carry on being 'independent' there are rules set out post RDR that you need to meet to keep the FSA happy. If you havent completed a comprehensive and fair analysis of the relevant market then you cant call yourself independent - regardless of how happy your clients are.
16:22 on 22 February 2012
It’s great that so many have seen through the myths and nonsense surrounding much of the debate on independence. It wasn’t so long ago companies were purporting ‘a PII exclusion for UCIS’ would mean independence was impossible.
The reality will see advisers making use of centralised research and suitable advice standards, coupled with well designed customer acceptance & classification, to ensure that inappropriate and potentially toxic products are not considered for their average retail customers.
Those choosing to offer a restricted service will do so based on its merits as a business model and not because of the scare tactics from those with clearly vested interests.
I’m sure most will have seen the FSA stepping in to put right some of these outrageous claims; Myth Busting on page 3
http://www.fsa.gov.uk/pubs/newsletters/rdr3.pdf
16:34 on 22 February 2012
To save downloading the full newsletter from the FSA here, in their words, is the view on UCIS;
Myth busting
Firms need to sell unregulated
collective investment schemes
(uCIS) to be independent
We expect uCIS to be suitable for very
few retail clients, if any at all, hence the
regulatory restrictions on their marketing
and promotion. A firm’s independent
status will not be impacted if they never
sell these products because they deem
them to be unsuitable for their clients, for
example, because they are not covered by
the FSCS.
16:38 on 22 February 2012
The key here is not what you sell but what you consider. The final sentence in the myth busting piece sums it up 'From the perspective of independent
advice, the key point is that considering a product is – clearly – not the same as
recommending a product.' As long as you have considered that they are not suitable for all your clients then that satisfies the independence rule
16:48 on 22 February 2012
That's quite correct, Neil. But we aren't just talking about whether an adviser 'sells' or 'advises' or 'considers', this issue is around 'understand how they work'.
It's encouraging that so many in this trail clearly understand that 'restricted' is not a synonym for 'demon'! Many advisers who end up being described as 'restricted' will be doing exactly what they do now - a very good job for their clients using just as wide a range of products (if any) as they do at the moment.
Personally I am a big supporter of 'Independent' as a brand - as well as a way of business - it is a shame that the FSA is introducing a system which is so confusing to those who will be having to operate within it as well as the consumers who will also have to understand it - at least to some extent.
The FSA's post implementation review has, as its first short term target that consumers should understand the difference between Independent and Restricted - good luck with that one!
16:54 on 22 February 2012
@ sam,
i agree on the calling yourself independant tag.
that is why full and frank disclouse of status should be a priority for the regulator.
we are all aware of firms/advisers who muddy the water on thier status as advisers.
advisers need to face up to thier limitations.
there is nothing wrong with being restricted in your advice realm as long as you are doing the job to the best of your ability with the tools you have and in the best interest of your client,and chargeing fairly for the work done..
tell the client the truth and let them decide.
16:55 on 22 February 2012
Advisers will be able to demonstrate understanding through some well planned and delivered structured CPD. This will not be onerous or at all costly.
16:59 on 22 February 2012
Sam, I will call myself whatever it takes and dont need to feed some compliance mouth in the process.
My priority is to do whatever it takes to persuade my clients that my service is worth paying for.
Like any succesful business I will naturally consider all of the tools available to me but will only use those which I deem to be appropriate to my clients.
17:12 on 22 February 2012
In fact, Neil, I don't think that it will need to be 'structured' CPD. Rory Percival (Head of Conduct and Risk) is on record as stating that CPD may be all that is required. He went on to say that the CPD would probably be available from product providers. That said, he also stated that much of that CPD should be taken with a 'pinch of salt' - immortal words!
That would suggest that 'impartial' structured CPD might not be available - in which case the rules would allow the use of unstructured CPD - even cheaper!
17:15 on 22 February 2012
We're running CII and IFP accredited 'structured CPD' starting this week for all 109 gaps at Lvl 4 . These are running at 20 locations across the UK and are free for our members to attend.
It's impartial and structured, and you can't get cheaper than free!
18:39 on 22 February 2012
It's very interesting to read the comments and it would seem most of the thread is in some sort of agreement. I sold my practice a couple of years ago but when advising always considered alternative investments as part of an overall portfolio. Mostof my personal clients were professional, HNW or businessmen so it was a natural considerartion in most cases.
What I can't reconcile (and probably couldn't whilst advising) is how is it possible to have a full understanding of the range of investments available to your clients on any side of the regulated / unregulated fence? We all know what an OEIC, SIPP, ISA, Bond is, but an indepth knowledge of the underlying assets, key counterparties, MI, trends is almost impossible. Hence we used a DFM for core holdings as they are 'supposed' to be better qualified and placed to make these decisions.
As an IFA, (unless specifically niche), I imagine, still wants to deal with the HNW market as much as possible? As such you would think independece, as the FSA require it, would be something a firm would strive for. Restricted is perfectly acceptable, but should also be perfectly clear to the consumer.
I am commenting now still as part of financial services, but as a distributor. It's opened my eyes considerably to the problems faced by IFA's through their interpretation of tenuous 'guidelines' set out by the FSA. I find most are of the 'half empty' persuasion which to me can only subdue enthusiasm for the job and have the adviser look after his own arse before that of his client.
P.S, the main Fund I promote is not a UCIS!
18:52 on 22 February 2012
Neil, the only problem being that the esoteric end of the RIP range (UCIS etc) don't fall into any of the gaps because the regulator has set the exam outcomes to meet the 'lowest common denominator' of advice rather than have a 'two tier' system for restricted and independent.
You couldn't make it up - well you could but why would you?
20:04 on 22 February 2012
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