The boss of a big financial services firm has suggested in the trade press this week that ‘independent’ financial advisers will no longer exist within a decade.
Instead of independent financial adviser, advisers will either be Chartered, Certified or just financial advisers.
At the end of this year, when the Retail Distribution Review is fully implemented on 31st December, there will be a clear distinction between independent and restricted advice.
The new definition of independent is advice which is unbiased and unrestricted, and based on a comprehensive and fair analysis of the relevant market.
It is designed to reflect the idea of a genuinely independent adviser being free from any restrictions that could impact on their ability to recommend whatever is best for the customer.
Restricted advice will therefore be anything that does not meet these new higher standards of independent advice from 31st December onwards.
Whilst ‘restricted’ advice does not necessarily mean the same as ‘tied’ advice used to mean, it will certainly represent a lower quality of financial advice for investors.
But will this mean that independent financial advisers face extinction within the next ten years?
As we approach the end of the year, there is a lot of scaremongering about the depth of research required to evidence that advice is truly independent.
Much of this scaremongering comes from larger firms who have a vested commercial interest in a move to restricted advice, as it could allow them to generate additional revenue streams from fund management and platform administration charges.
With many of the larger network and national firms struggling to run a financially viable business on an independent basis (some of the losses we see published are truly scary), it is little surprise that a restricted business model will appeal.
Whilst independent financial advice could become a less commonly offered service over the next decade, we believe where firms provide this gold standard of financial advice, it will remain extremely valuable for some investors.
Investors with larger portfolios and those with complex financial planning needs will continue to demand and benefit from independent financial advice.
The IFA isn’t on the verge of extinction as a result of these new rules, regardless of what some in the retail financial services sector will want you to believe.
Photo credit: Flickr/kevinzim
