What’s Restricted About Restricted Advice?

9 March 2012

A white paper from Avelo, the UK's leading financial services technology company, examining the issue of which regulatory status to adopt post RDR, finds that the majority of advisers intend to retain independent status. However, for consumers, the cost associated with it could prove too much of a barrier.

When asked which model they intend to adopt post-RDR, more than six in 10 advisers (62%) are looking to be independent, with just 12% opting for restricted. Worryingly, more than a fifth of advisers were still undecided despite the deadline fast approaching and the need to implement appropriate models becoming ever more urgent.

Clearly the terminology represents a barrier, with nearly half (46%) of advisers considering the term ‘independent’ as very positive, with only 2% opting for the positive end of the scale when it came to ‘restricted’. The same number (46%) of advisers believed the word ‘restricted’ had very negative connotations, underlining the dilemma advisers face.

On the consumer side, of those who use an adviser (26%), restricted advice (14%) was sought by fewer than those seeking independent advice (62%). However, for both sets of consumers, cost was key. When asked to think about their relationship with their adviser, having access to products from the whole of the market was only the third most important for consumers, behind ‘not paying for advice’ and seeing their adviser as a trusted professional.

So despite the fact that they are seeing an IFA, rather than a restricted adviser, access to products from the whole of the market falls behind the professionalism of their adviser and the cost of the advice for advised consumers.

When asked to rate the connotations of the notions of independent and restricted advice, the results were very similar to those of the adviser research. A fifth (21%) of consumers say the connotations of ‘independent advice’ are very positive, with only 1% saying they are ‘very negative’. In contrast, fewer than one in twenty (4%) say ‘restricted advice’ has very positive connotations, with 15% opting for ‘very negative’.

Chris Pitt, Avelo commented: “Cost is a clearly a critical barrier for consumers, and when it comes down to the crunch, product range is not as important as it might at first seem. Consumers think they want independent advice but do they fully appreciate what this, or restricted advice, mean and are they willing to pay for it?

“Advisers face a tough decision; remaining independent or becoming restricted requires huge changes in all aspects of their businesses, but consumers will ultimately vote with their feet. Many independent advisers will use their own selection panel so operate a model which is in a sense, a kind of restricted set up.

Pitt concluded: “Education is key here as people may not realise that restricted advice is more suitable for them if they are more cost sensitive. After all, it’s not the advice that is restricted, just the product choice.”

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