Financial advisers are split into two main categories, independent and restricted. These labels were first introduced by the Financial Services Authority (now part of the Financial Conduct Authority) in 2012 as part of the Retail Distribution Review. As part of the review, independence and what it means to advise on the whole of the market were redefined which led to a number of previously independent firms opting to offer only restricted advice.
Independent Financial Advisers (IFAs) can offer a full range of financial services and products across the entire marketplace. They're not tied to any particular provider and can give wholly unbiased and comprehensive advice based on a fair analysis of the relevant market or markets. The scope of products an IFA should consider when making recommendations is broader than that of a restricted adviser, it will include more specialist and complex areas such Exchange Traded Funds, Venture Capital Trusts and Business Property Relief.
Alternatively, an adviser may be restricted, the nature of this restriction can vary in a number of different ways but is primarily split into two types;
- An adviser may be tied to one, or several providers, and therefore only able to give advice on the products they offer. This is the kind of adviser you would typically find in, but not limited to, banks and building societies.
- An adviser may only be able to give advice on certain types of product and therefore can't give holistic financial advice. An adviser in this category may be able to, for example, offer you advice on investments but not pensions or vice versa.
An adviser may be restricted by part, both or a combination of the above. Some firms are segmented and offer both independent and restricted advice, however, this is unusual. It's important you fully understand the nature and implications of any restriction before you proceed in taking any advice.
Irrespective of the kind of advice, all advisers must be approved or authorised by the Financial Conduct Authority. You can check the status of an adviser or their firm on the “Financial Services Register”. The qualifications and requirements are exactly the same for both independent and restricted advisers.
Suitability is the primary factor when advising clients and both independent and restricted advisers are bound by the Financial Conduct Authority to offer “suitable” advice. This means that where a restricted firm do not offer a suitable product it is not permitted for them to recommend the least unsuitable option.
It's also important to recognise the difference between advice and guidance. Guidance is where general information is given, such as products and related terms being explained, but no specific product recommendation is made. When considering your options you should be aware that whilst guidance only can be a cost effective method, it can invalidate the protection offered by both the Financial Ombudsman Service and Financial Services Compensation Scheme.
The adviser or their firm must notify you in writing of the kind of service they offer, be that independent or restricted. If you're at all unsure it is prudent to clarify the type of advice you have received before implementing any of the recommendations given.
If you would like independent financial advice, contact our financial consultant Natasha Hellewell at Natasha@adroitfp.co.uk