Are independent and restricted labels out of date?

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Over recent years, there has been much sound and fury over whether independence is best and restricted the devil’s choice of advice proposition. Some two years on from RDR, I thought it might be worth reflecting on what has happened and the reality of what advice firms need to do in the future to meet clients’ needs.

Firstly, I should make clear that these are very much my personal, evolving thoughts. Sense is and will remain a champion of independent advice. Nevertheless it is vital that we have a reasoned and considered debate on the future of our profession and, if nothing else, I do hope that my thoughts stimulate some real discussion.

My original objection to restricted advice was based on nothing more than the reality that those adopting the model were doing so for their own interests rather than their clients.

The rise of the machines?

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Relax. We’re not about to see Arnie appear naked in a car park seeking to terminate a future leader of the advice profession. Nor I suspect would anyone really predict that computers will completely replace advisers over the next 5 years.

Nevertheless, research by RGA has concluded that machines will outsell advisers in protection products “within 5 years”. A sobering thought.

Just how can ‘simplified advice’ work?

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The gaping chasm in the financial services market, often referred to as the ‘advice gap’, desperately needs a solution and Mr Osborne’s guaranteed guidance at retirement surely adds some urgency to finding it.

Today’s  consumer has two options: Do it yourself, maybe with some pointers from a non-advised service of some sort, or take full advice with the associated time allocation and fee tariff. The former has a fair risk of doing it wrong, the latter has too high a price for consumers with more modest means.

Time for the Sheriff

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Earlier this year, I wrote about how non-advised sales were fast becoming the Wild West of financial services. One of the biggest growth markets is for annuity purchase and I recently saw some statistics which showed that non-advised annuity sales had increased significantly in 2013.

Let me say upfront that, although I believe that most clients will always get a better outcome from advice, I do accept that for clients with small pension pots, the cost of advice may negate any gain they might receive. But, and it’s a huge but, there needs to be much tighter control on the activities of some non-advised annuity services.

Non-Advised – The Wild West of Financial Services?

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When the FCA carries out its post implementation review of RDR, one of the consequences is likely to have been a boom in non-advised sales.

There are fewer advisers and, in order to survive, many will move away from transactional sales such as simple protection, small investments and annuities. At the same time, advances in technology are increasingly giving consumers access to comparative data which allows them to make informed decisions about purchasing these simple products.

To all intents and purposes, everyone should be happy? Well no. The FCA is already indicating that it is concerned about non-advised processes which the consumer regards as advice. It’s not enough to call it non-advised, it actually has to be non-advised: to misuse an old adage, “If it walks like a duck and quacks like a duck…..it’s a duck”.