As a firm of Chartered Financial Planners, we are proud to offer independent financial advice as we help our clients in Cranleigh and across Surrey to build, manage and protect their wealth.
Independent financial advice is an important part of who we are.
Since the end of last year, the regulatory definition of independent financial advice has been significantly tougher to achieve for advisers.
It is defined as unbiased and unrestricted, and based on a comprehensive and fair analysis of the relevant market.
The regulator goes on to explain that this is designed to reflect the idea of genuinely independent advice being free from any restrictions that could affect the ability of the adviser to recommend whatever is best for their customer.
Unbiased, unrestricted and genuinely independent advice. Sounds about right to us.
Anything that doesn’t meet this clear cut definition of independent financial advice is restricted advice.
A couple of stories in the past week or so have raised the importance of genuinely independent financial advice.
According to a poll of advisers by NMG Consulting, 49% believe a firm adopting a single investment platform for their customers should not be prohibited from referring to themselves as independent.
34% of advisers believe the same holds true when it comes to the use of a single investment proposition.
We can understand where advisers responding in this way to the survey were coming from.
Using a single investment platform should not preclude independence, where a few important conditions are met.
Independence still occurs where the single platform solution is being offered to a fairly homogenous group of clients, with similar levels of wealth, sophistication and objectives.
Comprehensive and fair analysis of the platform market should still take place to ensure that the investment platform being recommended suits each individual client.
Finally, if advisers are recommending one or a very limited number of investment platforms with any regularity, and still hold themselves out as independent, those platforms should offer access to a comprehensive range of underlying tax wrappers and investment options.
On the use of a single investment proposition, independent financial advisers will have the option to go off piste for specific individual clients, to recommend whatever is most suitable rather than the in-house centralised investment proposition in every case.
It is important to have a single robust investment advice process, which is applied consistently to every client, but the needs of the individual client should be tailored to the outcome of that process.
We also heard in the past week that the largest IFA network in the UK, Sesame, has plans to ditch independence and become a restricted adviser. According to reports in the trade press, they will move entirely to a restricted proposition in 2014.
This means the clients of their 1,250 member firms will no longer receive independent financial advice and will instead be on the receiving end of a restricted proposition.
We expect other IFA networks to follow suit; watch out if your IFA is an ‘appointed representative’ of another firm, rather than directly authorised and regulated by the Financial Conduct Authority.
Independent financial advice is, in our opinion, best delivered to customers by reasonably small teams of advisers and support staff, working with the best interests of their customers in mind.
As we have also seen today with the news that HSBC is setting aside £93m for a past business review of its investment advice, restricted and tied advice often fails to serve the best interests of customers.
To answer my original question, how important is independence; the answer must be very important, particularly if you want to ensure you receive suitable advice which is right for you, rather than broadly OK for a large group of similar people.
