Jeannie Boyle (pictured above), Graeme Mitchell and Scott Gallacher discuss how they explain to clients their independent or restricted status.
Jeannie Boyle
Technical director, EQ Investors
We are restricted because we only recommend investments that are managed by our own team. But in terms of how our investment managers go about choosing investments in portfolios, they are unrestricted and can choose any suitable investment as long as it meets our criteria. Our investments have to be liquid, for example.
Be concise
We make it clear to clients we are restricted. It is hard for consumers though. It is easy for consumers to get confused between a restricted adviser and a tied agent. For us it is difficult to describe a process where a team is given an unrestricted ability to choose from any fund without using the word independent.
You need confidence in your ability as an adviser to explain things clearly to someone, and the comments a client makes will hopefully be clear enough for you to believe they understand what is being said. Most clients will see one or two advisers before they choose someone, so they have a chance to compare services.
Bust the myths
I am not sure the terms the profession is using are helping anyone make a good choice, because the term independent sounds wonderful, and the term restricted does not sound so good.
It is natural for clients to want to use an IFA, but once they understand what restricted actually means they are happy to use our service.
Graeme Mitchell
Managing director, Lowland Financial Services
When the retail distribution review came in, as a one-man band, I knew there would be a lot of areas I did not know anything about.
Pick your area
I had a good look at the Financial Conduct Authority’s (FCA) categories of retail investments and decided only to do the A-D categories. I do not advise on things such as unregulated investments and structured products.
In that respect I am restricted, as I have decided there are certain product areas I would describe as higher risk that I have chosen not to get involved in. That allows me to focus on things I know and understand the best, such as personal pensions and drawdown.
I usually raise my restricted status at the first client meeting because I have to introduce my client agreement, and in the course of the client agreement I refer them to the back page where we talk about me being restricted.
Explain thoroughly
One of the problems with the term restricted is it can mean all sorts of things. I am whole of market but limited to the product areas in which I advise. However, regarding products I am dealing with I can advise on whatever I like, so I have all the benefits of the impartiality of independence.
Once I have the chance to explain it, no client has ever said they did not want to deal with me, so it has never been a problem.
Scott Gallacher
Director, Rowley Turton Private Wealth Management
We explain to clients that we are IFAs as we are not tied to or owned by any product provider, and we are free to research and select the most appropriate products for a client.
Stay honest
It is a bit of a nightmare because everyone who is restricted tries to explain how they are not restricted. They say ‘we are not really restricted, it is just because we only do pensions’, which is far from clear, fair and not misleading.
I read an article recently from a restricted advice firm and it was ridiculous spin about how they carefully selected products. It read as if being restricted was the best thing ever.
There is confusion in the market. The majority of advisers are now restricted, so if you pick one at random you are likely to get a restricted adviser and that website will, almost without exception, not mention the firm being restricted.
By the time clients find out, they are in a verbal conversation, so have already met them and may like them. The client is then reliant on the adviser explaining what that restriction means.
Regulate the market
If the FCA wants to make it a choice between independent and restricted, it needs to reintroduce the old polarisation rules. The regulator has issued guidance on restricted and independent terms, and that should be on everyone’s letterheads and websites.
THREE TOP TIPS
-
Jeannie Boyle: Be confident in your explanation to ensure clients understand what is being said.
-
Graeme Mitchell: Raise the issue early in the first client meeting.
-
Scott Gallacher: Look at recent FCA guidance on the terms and use these definitions.