Ever since RDR, regulators have realised there needs to be a rethink on what ‘independent’ and ‘restricted’ mean in the context of automated advice.
Phrases such as ‘independent’, ‘restricted’ or ‘restricted whole of market’ are commonly used across the marketplace. However, there is confusion and there have been calls for the categories to be redefined. At the moment, if a firm specialises in just one product type, such as pensions, but still researches the whole of market when recommending that product to its clients, it must still call itself restricted. Whatsmore, the FCA does not actually have a definition of ‘restricted whole of market’ and people have been warned against describing themselves in this way. Or if they do they need to make sure they explain exactly how they are restricted. It’s also worth remembering that there are penalties for getting it wrong.
Can robo-advice ever be independent?
Against this background, it stands to reason that no totally automated proposition can call itself independent. However, there is no reason why IFA firms cannot use robo advice as part of their menu of services, without losing their independent status. And it does enable them to dramatically widen the scope of what they can offer to clients.
An automated service can still ask clients questions about investment experience, objectives, risk appetite and capacity for loss before recommending appropriate products but that will only be within the context of the adviser having determined the correct overall solution first. Firms have also spoken about how it has improved access for people and enabled them to reach clients that wouldn’t usually use a financial adviser. Automated propositions do also bring with them the advantage of cheaper costs.
So what does the future look like?
It seems that compromise and collaboration are what will be called for as IFA practices seek to combine what they have traditionally offered with robo-advice. Fitting an automated service into a broader independent advice proposition is actually very similar to the process firms go through when building their centralised investment propositions (CIP). It may be that the definitions of ‘restricted’ and ‘independent’ will need to change slightly in the future but the end result should always be that the client gets the best solution for them and understands what is being offered.
Where does CleverAdviser fit in?
You might not be surprised to read we feel our ‘intelligent investing’ solution offers the best of both worlds! Our investment service uses algorithms and data to search the whole of the market to make the most appropriate fund selection for your clients. This data is given to enable IFAs to recommend a particular course of action to their clients through dialogue and consultation.
The decision-making process may be based on analytical technology but there is still human interaction when the adviser interprets the results and makes recommendations to help the client meet their specific goals and objectives. In this way you can leverage the benefits of efficiency and cost-effectiveness, without losing any of the warmth or personal nature of the client-adviser relationship.
If you’d like to know more about how we can help you to build your CIP whilst maintaining the independent nature of your advice, book a demo here.
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