Key elements include making the cost of advice more transparent for the client and ensuring that all advisers are appropriately qualified. This means an adviser calling him or herself 'independent' has to take higher examinations and has to consider all types of investment areas and products from all firms across the market. Also, if you want to take independent advice you have to agree a fee with your adviser, rather than pay via commission from the purchase of products.
However, watch out for a big loophole in the new Retail Distribution Review (the official name for the new regime) rules relating to financial advice. The FSA's rules state that all advisers have to inform their clients before providing advice, whether they provide 'independent' or 'restricted' advice.
An adviser that has chosen to offer 'restricted' advice can only consider certain products, product providers or both. Firms must inform clients as to whether their advice is restricted or independent, orally and in writing, before providing advice, although this need not necessarily be via their website.
VouchedFor.co.uk - which lets consumers rate and review IFAs - has conducted initial research suggesting larger financial advice firms are not being clear enough that their advice is now 'restricted', following implementation of the Retail Distribution Review (RDR).
VouchedFor.co.uk reviewed the websites of the 10 largest financial advice firms. Eight of the 10 firms now provide restricted advice, although only two were explicit about this on their websites.
Only Hargreaves Lansdown and AWD Chase de Vere were found to offer independent financial advice. Close Brothers Asset Management has a page about RDR, mentioning that it provides restricted advice. Skipton Financial Services mentions it provides restricted advice in a site-wide footer message at the bottom of each web page. Advisory services were not explicitly labelled as 'restricted' among the remaining six restricted-advice firms' websites.
Some firms, such as Towry, have simply dropped the word 'independent' from their websites without adding the term 'restricted'. St James's Place, which had not claimed to be independent pre-RDR, has not added the term 'restricted' to its website.
So consumers looking for independent financial advice may need to seek out smaller firms. While eight of the 10 largest firms now offer restricted advice, a recent FSA study stated that overall 58 per cent of financial advisers will remain independent. Most independent financial advisers operate in small firms.
In addition to the lack of clarity about restricted and independent advice, there is also plenty of 'non-advice' masquerading as advice. 'Non-advice' provides guidance, quotes and explains terms to help a client buy a product. The big difference is that the investor has made the decision without independent or restricted advice so if anything is wrong with the choice then it is their responsibility not the adviser's.
The FSA is allowing 'independent' and 'restricted' advice, plus the information-only 'non-advice' services to exist alongside each other with very different rules and customer protection because they believe that the customer will understand the difference between the two and will make an informed choice as to which service they prefer.
But I doubt very much whether consumers do understand the difference between the two types of advice and the different protections/rules involved.
