What’s the true cost of independence?

Since the introduction of the Retail Distribution Review (RDR) on the 31st December 2012, we have seen both financial advisory firms and the banks provide details not only of the level of charges they propose to levy on clients but also whether they will be classed as independent or restricted, in the advice that they give.

Firms have had to decide whether truly independent impartial advice is going to be their cornerstone as the separation between sales and advice becomes clearer and more transparent.

What we are seeing though is that there could be differing levels of degree in what a company will advise upon. For example, an independent firm will be able to advise on all investments, products and planning.

Some restricted firms will be able to advise and recommend on broadly a similar market from the various providers available, but may choose for example, to not provide advice on more esoteric investments or planning, such as tax related investments or more exotic investment areas. Some of these areas have come under greater scrutiny by the FSA and HMRC in recent years.

Whilst the differences could be significant, for example where a company may only recommend one providers products, the differences may also just be minor. Whilst these are important considerations when choosing an advisor, we believe other areas such as the level of qualifications, the charging proposition to clients and whether the firm has chartered status will become the greater focus of consumers and the media as we move forward.

So, will the cost of providing restricted advice be less and therefore cheaper for consumers than going to an Independent firm? Whilst it may be true in some cases, the overriding cost of regulation, consumer protection, advice and implementation are common to all advisors and therefore we would not expect there to be a greater cost to seeking Independent advice.

At the heart of the RDR is a move towards greater transparency on charges and the removal of commission in almost all areas of advice should provide comfort that there are no other drivers to the advice provided other than what is right for the customer. Comparison of costs and services should therefore become easier, which we welcome and encourage. The method of charging for our advice to clients and the on-going management of their portfolios has both common charging elements as well as costs linked to the size of the portfolio.

At this early stage clients will just be getting used to this brave new world and over time the landscape for all of these important considerations will become clearer. We have embraced these changes and look forward to the future with our clients. To talk to Jason about any of the points raised in the article email [email protected] or call 01772 550772.