The Consumer Duty is three months old and has already been credited with changing the fee structure at St James’ Place (SJP), one of Britain’s most popular advisers, for the better.
By which I mean, of course, cheaper – at least for some clients on some products at some point in the future. Which is good news for its 941,000 clients and the £158bn of their money it holds.
But there is a major problem lurking within the rules surrounding Consumer Duty. It imposes no specific obligation on advisers to declare the single most important consideration for any client who wants the best advice – are they independent or restricted?
SJP is, of course, restricted. Neither status is mentioned in the 67 pages of Consumer Duty rules or the 121 pages of guidance on those rules.
It imposes no specific obligation on advisers to declare the single most important consideration for any client who wants the best advice – independent or restricted?
In my view, every restricted adviser should start their initial conversation with a prospective client along the following lines:
“I am a restricted adviser and so the investment recommendations I make to you will not be the best available. That is because I am only allowed to discuss with you the restricted range of investments I deal with. If you want the best advice, I suggest you find an independent financial adviser. Now, are you happy to proceed with me as your restricted adviser?”
That is a lot earlier and stronger than the ‘oral disclosure’ required by COBS 6.2B.38R, which merely says the adviser must inform the client that the firm “provides restricted advice and the nature of that restriction” and do that “in good time” before investment advice is given.
Being independent is the key information that an adviser is likely to be one of the good guy
Making my recommended statement as the first interaction with the client would mean the adviser could clearly show they had, as they are told to do by the so-called cross-cutting rules (in bold),
- Acted in good faith towards retail customers – by making this clear status disclosure at once
- Avoided causing foreseeable harm to retail customers – by encouraging them to find an independent financial adviser
- Enabled and supported retail customers to pursue their financial objectives – which can best be achieved by independent advice.
If they do not make such a statement, my view is they breach that guidance and fail in their Consumer Duty.
The Financial Conduct Authority told me: “In terms of the Consumer Duty, we expect all firms to provide their customers with the information they need, at the right time, and presented in a way they can understand – to equip customers to make effective decisions supportive of good outcomes.”
If they do not make such a statement, my view is they fail in their Consumer Duty
I believe the Consumer Duty should also ensure advisers state their independent or restricted status on the landing page of their website. That is not likely to find favour with the FCA either, as its register does not state whether a regulated firm or individual offers independent or restricted advice.
Investors who want to find out have to rely on the commercial search engines to do that. Unbiased and VouchedFor show adviser status as independent or restricted on their lists. AdviserBook labels a small number of advisers ‘confirmed independent’ but the vast majority are labelled ‘independent status unconfirmed’. Perhaps they are unconfirmed because ‘restricted’ is a word few advisers ever utter voluntarily and certainly do not put on their websites.
Strangely, independent advisers are sometimes equally reticent about their status. They are much more likely to say they are chartered financial planners than state they are independent.
Consumer Duty should also ensure advisers state their independent or restricted status on the landing page of their website
Some have told me the phrase independent financial adviser (IFA) has itself been tainted. Not least by the likes of IFA Simon Hughes who the FCA banned for life on 22 September from any senior management function in a regulated financial activity after he wrongly advised 188 British Steel pensioners to cash in their final salary pensions.
They lost £10.5m between them but received only £8.4m in compensation from the Financial Services Compensation Scheme. He was not the first and probably won’t be the last. Nevertheless, being independent is the key information that an adviser is likely to be one of the good guys.
Of course, those independent advisers are right to stress they are a chartered – or certified – financial planner. That is the second most important question for a potential customer to ask. If the answer is ‘no’ they should just reply ‘no’ and move on to the next on their list. The FCA register gives no help on this either.
Finally, while I am at it, may I remind all my journalist colleagues that IFA is not a generic abbreviation for ‘financial adviser’? That is a mistake made far too often. It is definitely not an abbreviation for restricted financial adviser – that would be RFA which expands to ‘recommend fast avoidance’.
Paul Lewis is a financial journalist and host of Radio 4’s Money Box
I see Paul Lewis is on his eternal quest to try and get The Advice Gap in the UK up to the magic 100% figure.
The clients of SJP advisers are either, unaware of the distinction between restricted and independent advisers, or simply don’t care.
Financial advice is a people business and people buy people and not products. As such if a client has a good relationship with their adviser they assume that the adviser is working in their best interests and providing them with the best products available. That may, or may not be the case, as many a client has discovered to their cost.
As far as clients are concerned perception is reality and if you were to tell them that their adviser isn’t doing the best job possible for them, they wouldn’t believe you. Because in a lot of cases they regard the adviser as a friend.
Most SJP salespeople earn a lot of money because they have high production levels and target high net worth clients. People tend to assume that if you are earning a lot of money from providing financial advice, that you must be doing a good job. Again that is not always the case. They are doing a good job of selling their services to clients. But whether their services are any good is another matter.
I have come across SJP advisers in the past who have been earning lots of money. Some have even reached the level of Principal Partner but who I would best describe as rogues. They have known how to play the system to their advantage. Some of them have eventually been exposed for what they are. But others have managed to make it all the way through to retirement without being exposed.
I would go as far as saying that any IFA who is honest and knows what they are talking about, should be able to provide better advice than a SJP salesperson.
If you were going to buy a car you wouldn’t go to a Ford dealership and expect to get the best deal on the market. They would be able to sell you the best Ford car that meets your needs. But if there was another make of car that was better than a Ford they wouldn’t recommend it to you. The same principle applies to SJP. They can sell you the best products that SJP offers but there may be better products available on the market which they can’t recommend to you.
As an IFA I broadly agree with the gist of this article but it’s worth remembering that for Paul nothing will ever be good enough.
ALL advice firms are restricted in one way or another, it’s just a matter of degree. NO firm, however large and well resourced, can POSSIBLY have a comprehensive and up to the minute working knowledge of every product available from every provider on the market. It simply couldn’t be done.
And if Paul thinks that ANY firm is going to start its conversations with prospective clients by telling them to go elsewhere for the best advice, he must be living in cloud cuckoo land.
Spot on Julian. Paul fails to distinguish between firms such a SJP that use provider panels for each area of advice that they offer, versus specialised advice firms that may for example only offer regulated advice on Corporate Employee Benefit plans, but because they only operate in this area are seen in the eyes of the FCA as restricted advisers, even though they may take a whole of market approach in the recommendations they make for their clients.
Paul, I’m confused by the thrust of your article.
A restricted adviser is as capable as an IFA in assisting any individual in terms of financial advice and planning. What they ‘may not’ have in their locker are access to the best or most suitable products, should these be required as a part of the solution.
I thought you felt that our sector should
move beyond simple product sales and yet this article seems to take us right back there, by denying a restricted adviser the right to even establish the needs of a would-be client, by insisting they should tell the persons that they would be better off speaking to an IFA.
Get a grip and grow up Paul (from an IFA)!
Hear Hear. If Lewis had consulted an adviser (whether independent or restricted) instead of slagging them off, he might have retired by now instead of harping on endlessly about conversations the industry had years ago.
Paul Lewis is a bit like Eeyore, with his dour attitude towards the financial services sector. If he had his way Financial advisers would be paid the minimum wage. Having said that, doesn’t mean that he can’t sometimes make valid points.
St James’s Place Partnership appear to have benefitted from preferential treatment in relation to disclosure of the cost of advice following the RDR.
I believe it was because their business model is ‘vertically integrated.’ Meaning that they could make it difficult for consumers to work out how much they were actually paying for the advice.
They now appear to have been put under pressure by the FCA and have agreed to get rid of their early encashment charges on pension plans and investment bonds, but not until 2025.
There is no way that they are going to agree to their salespeople having to say to clients “I am a restricted adviser and so the investment recommendations I make to you will not be the best available. That is because I am only allowed to discuss with you the restricted range of investments I deal with. If you want the best advice, I suggest you find an independent financial adviser. Now, are you happy to proceed with me as your restricted adviser?”
Paul Lewis needs to get real if he thinks that is going to happen.
You are so right Paul. Julian’s arguments are standard fare for the restricted. Why do you think so many use the terms Planner & Wealth Manager. Just a convenient way of hiding the fact that they are not independent. IFA is the Gold Standard.
Another dinosaur to keep Lewis company. Why don’t you just go away, you’re so full of yourself.
If memory serves, Harry, despite claiming to be WoM IFA, your standard advice on all Structured Investment Products, Equity Release and who knows what else was They’re rubbish so don’t touch ’em. That’s not WoM IFA. It’s restricted advice based on personal prejudice.
That Julian is just arrant nonsense. So, you think that if one’s opinion is that these products are sub-standard one should recommend them anyway? Equity Release is the biggest rip off in financial services and should only be used in the direst of circumstances. Fortunately, none of my clients were in that sort of position. Those few who happened to enquire about it were just shown the figures – I had to do no more – that put an end to it. As for structured products, again an expensive option. Anyone with a decent grasp of investments should be able to construct a portfolio that negates having to use these. Unfortunately, these constructed products and provider initiatives point to the sad fact that far too many advisers shouldn’t even be in the investment field. Being independent doesn’t mean you have to use or know about every single product, provided you are using a wide choice. What independence means is that if an unusual, new or interesting product or investment is drawn to your notice (extensive reading helps) then not being restricted, you are able to use it. I’m afraid you knock your head against the wall trying to justify restricted advice. Paul Lewis is by no means the only commentator to have this view and as someone who largely got all his clients through profession connections, those accountants, solicitors, surveyors etc would only consider and independent adviser.
Underneath the content is the fact that SJP is a powerful lobbyist…as Allied Crowbar was before…
I wonder how many times anyone will say to the Independent Advice Block…get organized and kick bottoms…!!
Digressing… are entities like SJP included in the Govt. push to invest in UK?? Answer over luncheon please… wow… Psycho finally agreed to lunch!!
😉
Blame the regulator and the inane rules they introduced in 2013.
There are certain products that I cannot and do not want to advise on – opt-outs, final salary transfer, offshore investments. Why? Because of the potential grief and also because my client bank is not the sort to consider EIS’s or offshore investments.
Because of this I am ‘restricted’, a pejorative term implying some fundamental lack. I know of ‘IFA’s who use restricted panels yet bathe in the light of the iFA moniker suggesting they are superior.
In the mortgage market I am unable to offer HSBC or Bank of Ireland and this applies to many other firms so, whether IFA or not, the term ‘whole of market’ is meaningless.
Consumers want a trustworthy firm that can deal with their financial problems. As most consumers have standard problems it matters not a jot whether they sue an IFA or a whole of market restricted firm.
There is absolutely no evidence that independent advice delivers better outcomes for people, on average than restricted advice. None. Zero. Paul’s opinions, with no evidence to support to support them, are just hot air.
Maybe not, but with independence there is the prospect of better outcomes. Anyway there is another consideration, to be truly independent you must be able to set your own tariff. Many restricted advisers are roped into an overall provider/host who sets the rates. These are set so that the host can make their rake off.
Perhaps this article should have commenced with a risk warning that better financial journalists are available and your time could be better spent engaging with them?