What’s in a name?

The Retail Distribution Review (RDR), which came into force at the start of 2013, in addition to providing consumers with greater transparency as regards the cost of advice, was intended to provide consumers with more clarity in respect of the type of service received from an adviser.

Whilst RDR has, arguably, made certain aspects of the financial advice industry clearer and easier to understand for consumers, it seems that there is still some cause for confusion where the type and scope of advice is concerned.

In particular, it is evident that there are some financial advice firms that are using non-standard terminology to describe the type of service that they receive, which is potentially mis-representative to consumers with little, or no, investment knowledge.

One such term we commonly see is “restricted whole of market”, used to describe the level of service being provided to a consumer.

The mention of “whole-of-market” might suggest that a firm is providing advice based upon an assessment of all available products and investments, whereas in fact this is not likely to be the case, owing to the restriction.

For example, an adviser may only have the relevant regulatory permissions to advise on, say, pensions. As a result, making recommendations regarding the investment of an award of personal injury damages would be outside of the abilities of this particular adviser.

In other words, whilst the adviser in this instance may be able to look at products and investments across the entire marketplace, this would be limited to pension products only.

Consequently, in isolation, “restricted whole of market” is not a particularly helpful term, as there is no indication as to the precise nature of the restriction.

In fact, the term “restricted whole of market” is not actually recognised by the FCA. In the eyes of the FCA there are two categories of adviser, either “independent” or “restricted”.

Shortly following the implementation of RDR, the FCA warned against firms describing themselves as “restricted whole of market”, as this is misleading for consumers (https://www.out-law.com/articles/2013/november/advisers-cannot-claim-to-offer-whole-of-market-restricted-advice-without-further-explanation/).

Despite this, it is still quite common to see firms describe themselves in this way.

Restricted advice is defined by the FCA 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. If you are not sure you should ask for further information, but some examples of restricted advice are where:

• the adviser works with one product provider and only considers products that company offers; and/or
• the adviser considers products from several – but not all – product providers; and/or
• the adviser can recommend one or some types of products, but not all retail investment products; and/or
• the adviser has chosen to focus on a particular market, such as pensions, and considers products from all providers within that market.

Restricted advisers and firms cannot describe the advice they offer as 'independent'.

Independent advice, on the other hand, is described as follows:

An adviser or firm that provides independent advice is able to consider and recommend all types of retail investment products that could meet your needs and objectives.

Independent advisers will also consider products from all firms across the market, and have to give unbiased and unrestricted advice.

An independent adviser may also be called an 'independent financial adviser' or 'IFA'.

As can be seen, an independent financial adviser is free to consider absolutely all retail investment products that might be suitable for an investor’s needs, whereas a restricted adviser cannot, and dependent on the nature of the restriction this could severely limit an adviser’s ability to provide the most appropriate and fitting recommendations.

On the basis of the above, one can see that an independent adviser might be the preferred choice for most, if not all, consumers.

Specifically in relation to Deputies and Trustees, whilst it might be permissible to use a restricted adviser under the terms of any Court Order or Trust deed, the onus is on each Deputy/Trustee to satisfy themselves that any restrictions are in no way detrimental to the underlying beneficiary and that independent advice would not have been more appropriate.

Of course, being able to make this decision implies that a good understanding of investment is required, which is in part why financial advice is being sought in the first place!