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This content is for information and inspiration purposes only. It should not be taken as financial advice or investment advice. To receive tailored, regulated advice regarding your investments and financial goals, please consult an independent financial adviser here at Suttons IFA in Manchester and Cheshire.

Lots of people in Manchester may be vaguely aware that there are different types of financial adviser, and that these might be more or less suitable depending on the individual. However, not everyone is aware of the distinction between “independent” and “restricted” advice, why it matters and how it affects them.

According to the Financial Conduct Authority (FCA), restricted advice may refer to “basic advice” or to “personal recommendation to a client which is not independent advice”. Whilst this is helpful to a degree, it isn’t completely clear. For instance, does it count as restricted advice if a financial professional simply explains the different types of risk levels involved in a set of model investment portfolios, but does not recommend one to you? How complex does financial advice have to be before it moves from the realm of restricted to independent advice?

After all, this starts to then suggest that only those with large, complex estates can truly benefit from independent financial advice. Yet our financial planners here at Suttons IFA believe that such advice should be available to everyone. Here, we explain our definition of restricted versus independent financial advice, and why the latter usually holds out more value to the client.

Defining restricted advice

Within the UK’s financial advice sector, restricted advice is commonly understood to refer to a financial adviser who is only allowed to deal with certain areas of financial advice (e.g. pensions or protection). In addition, they usually are only allowed to recommend certain financial products and services to a client. St James’s Place is a good example of this type of advice. Many small financial adviser businesses operate under this brand across the UK (called SJP partners), and they are encouraged to sell SJP products and funds to clients, with no consideration to alternatives from the whole of market which may be better suited to your requirements and save you a lot of money in charges over your lifetime.

As such, whilst it is not always the case, this encouragement can take the form of perks or commissions which are offered to the restricted adviser for selling certain products. Certainly, there will be noble restricted advisers who try to put their clients’ best interests first, and who do a great job. Yet even if the most well-meaning, restricted adviser believes other products are better suited to their clients he or she simply cannot recommend them – and so this restricted advice model is fundamentally not aligned with the best interests of clients.

Why independent advice holds advantages

Back in December 2012, the Retail Distribution Review (RDR) was created by the FCA to try and counter the kind of financial advice which sought to put profit before clients. It radically changed the way the sector was structured and encouraged greater transparency in fees. One notable development was that adviser firms could no longer would no longer receive a commission directly from a fund company or product provider.

However, as the SJP structure shows, it is still possible for restricted advisers to receive perks and commissions from other financial firms for selling certain products, funds and services. This is an important reason why our Manchester-based team here at Suttons IFA believes that there is a better way to serve clients’ needs. This is through independent financial advice; the type of advice we offer here, for instance.

Under the RDR’s structural changes, an independent financial adviser (IFA) needs to meet a higher standard of qualifications to justify this label (e.g. Level 4 or above). They must consider a much larger range of financial product offerings from the whole of market and always recommend the most suitable provider for the client’s personal needs and requirements.

It certainly is not just about products – these are just the tools that allow us to do the job and allow you to save and invest for your future in the most effective and efficient way. The most valuable aspect of financial advice is having an adviser who will put the time and care into getting to know what you want, why these things are important to you and in helping you with the most important financial planning decisions to make these things a reality. We don’t want to single out SJP for criticism either, it’s just the restricted model is fundamentally misaligned with the best interests of clients.