Who wins?
Important as commercial and operational factors can be, questions remain around whether restricted advice is best for clients.
Mr Kavanagh acknowledges the restricted approach does have merit, so long as firms have the right priorities in mind. “It provides greater choice for consumers and more competition should, in theory at least, lead to a raising of standards,” he notes.
“However, new firms will provide limited benefit to consumers if their main focus is on selling their own products. [There will be a] limited benefit in addressing the advice gap...if their focus is on providing advice and selling products to wealthier clients.
“This approach doesn’t necessarily place the client at the heart of their decisions or result in clients getting the best deal. But this doesn’t mean that all restricted propositions are bad – some have very reasonable propositions.”
Kusal Ariyawansa, chartered financial planner at Appleton Gerrard, says the problems of the past did not necessarily lie with advisers themselves.
He explains: “Consumers need access to advice and the profession needs new advisers. If such strong brands can provide a restricted service for people in need of advice, I welcome that.
“Yes, banks have a poor reputation and will never act solely on behalf of their customers – the chances are they will be compensated for poor advice more proactively. The issue has rarely been with the bank advisers, rather, the middle managers who push advisers to achieve unrealistic sales targets that earn generous bonuses for the managers.
“Corporates need to remove these inefficient and unjustifiably egotistical middle managers who serve little purpose in adding value to the consumer.”
The small print
The FCA defines restricted advice as follows: “A restricted adviser or firm can only recommend certain products, product providers, or both. The adviser or firm has to clearly explain the nature of the restriction.”
Introduced in 2012, the definitions of independent and restricted advice, some of which are outlined in Box 1, represented an overhaul from the previous classifications, which stated advisers were either independent, multi-tied or tied.
It could be argued that the current definitions should be more nuanced, as restricted advisers’ product scope does vary widely in reality. For example, as the final bullet point in the box notes, an independent adviser with a particular specialism could find themselves listed as ‘restricted’.
In Mr Thompson’s view, it is the advice and not the definitions that are important. “The rationale for creating these definitions is sound, but time has moved on,” he says.
“As an industry, we need to focus on the underlying advice given and the suitability and charges of that advice. Neither reinventing nor disposing of these definitions is worthwhile. We must put less weight on them as an industry and more focus on quality of service and customer outcomes.”
