Pretty much since the 1988 Financial Services Act Independent Financial Advisers have been staunchly defending the term "independent". The FSA have rightly critiqued this, suggesting independence can only really mean providing impartial advice, considering the entire market. As we know, impartiality is pretty difficult to define in a real and lest face it "honest" way.
To my mind, impartiality is a difficult term to really use well. Let's take the example of me. Well I have a vested interest in getting clients to invest money - I get paid more as the fund grows. I might actually lose money if I advise someone to surrender an investment or take their pension or repay their mortgage. This is where personal ethics come into play, because frankly it is a matter of context and subjective opinion whether one should take the pension now, cash in an investment or pay off the mortgage. There may be other valid factors, perhaps largely with attempting to help a client pay less tax. Sometimes it is obviously the right and best thing to do.
I concede that this is a difficult area for regulation, which wants to be precriptive (by nature) but is well minded enough to appreciate that this can lead to folly in practice. However, set in the context of long-term client relationships it seems entirely counter-productive to fleece wealthy, intelligent people in order to make a quick buck (I would suggest that it morally reprehensible, to fleece anyone regardless of wealth or education). I fail to see the sense in anyone doing so.
Surely the key is to create a scenario where the adviser is not better off for reccomending using company X over company Y or product A over product B. Ideally a client should pay a fee for the advice as this makes the financial product cleaner and cheaper, but not everyone can afford this, so I'm not against commission - when there is a truly level playing field.
The FSA want RDR to redefine independence - this will mean to be an "IFA" the adviser MUST consider all options - including unregulated products (for which there is no investor protection) and structured products (which exist to make a very lazy product provider very rich and the client poor if things don't work out) as well as investment trusts (which are really shares) in which case why not just reclassify us as stockbrokers. Anyone that fails to do this, irrespective of the way that they charge, how many exams they pass, what their professional indemnity insurance covers and how much "bail out" money they hold on deposit - will not be permitted to use the term "independent". They would have to use the term "restricted".
Unless this badly thought through plan is altered, I would suggest that notions of a 20% reduction in the IFA community are likely to be woefully inaccurate - more like 20% left (if that). An IFA does not want to be a stockbroker (although I know a few that think they are) and they certainly do not want to sell rubbish products (at least those that I know). So at this stage it would appear that many may end up being labelled "restricted advisers" which is perhaps the most stupid term for someone that searches the entire regulated market and will be the same term used for Banks.
In conclusion I can see an outcome where a small number of IFAs exist that can smugly call themselves independent, advise only the wealthiest of clients and potentially be about as impartial as some of our daily newspapers.
What a complete mess.
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