Independent financial advice versus restricted financial advice

The Retail Distribution Review (RDR) back in 2012, created the confusion of introducing two types of financial advisors, independent and restricted advisors. The Financial Conduct Authority chief executive Martin Wheatle said in a recent interview earlier this year that the regulator had received negative industry feedback over independent and restricted advice definitions and that he aimed to tackle this confusion.

At Regulated Advice, we provide access to both independent and restricted advice, with 62% of the advisors on the platform offering independent advice and 38% offering restricted advice.

We label both sets of financial advisors either as an Independent Financial Advisor or as a Restricted Advisor on the platform profile although due to the negative connotations of ‘restricted’ or the lack of understanding by the public the label has to be small. Indeed a glance at the two of the largest restricted firm websites reveals the fact that they do not describe themselves as restricted. Whereas with independent advisor firms,  the word ‘independent’ is always displayed prominently on their websites.

UK financial advisor market

	Independent firms	Restricted firms	Both
2016	4,758	848	140
2017	4,787	821	127
2018	4,791	785	102
2019	4,814	763	89
2020	4,723	733	87
2021	4,727	702	82
2022	4,475	470	63

Source: www.statista.com

As can be seen in the above table the number of restricted firms is dwarfed by the number of independent firms. But these numbers do not tell the full story. Networks or restricted firms employing hundreds of advisors count as one. 

Therefore, the ratio of independent versus restricted is perhaps more in line with the ratio of advisors who are on our platform. As of 2021, there were 27,000 advisors in total advising on retail investment products.

Foundations of good advice

Regardless of whether the firms offer restricted or independent advice and whether they shout it from the rooftop or not, all financial advisors must meet the same minimum qualifications and adhere to the same regulatory requirements. 

Both are qualified to the same standard, are regulated and follow the same conduct rules meaning a financial advisor, regardless of type cannot just sell you any old product. 

All financial advisors must undertake a fact find and ask detailed questions to understand a client's attitude to risk before recommending any solutions.

Financial advisors are also required to operate in the best interest of their client, and if an advisor cannot better what you currently have, their advice would be to do nothing. 

This ensures that you will receive a certain level of expertise and protection when seeking financial advice regardless of the type. The only difference, therefore between the two, would be the solution offered.

Independent advice

Independent advice offers advice on the whole of the market. 

This means an independent financial advisor can research the entire range of products which could meet the needs and objectives of the customer. This allows the advisor to have access to a wide variety of products that could suit their circumstances and a wider range of services can be delivered to the customer.

Only around 8% of clients that we speak to in booking appointments specifically request independent advice. 

Restricted advice

Restricted advice offers advice across a small range of products.

In comparing independent advice with restrictive advice, a good analogy would be comparing a boutique hotel with a major chain hotel. 

Both hotels offer essentially the same product, the small boutique hotel may offer locally produced food and drinks. The large chain hotel, on the other hand, is more likely to offer the same food menu across all of its outlets, with food purchased from the same range of national suppliers. The rooms would all look the same and standardised to the same specifications.

A large restrictive financial advice firm operates more akin to a large chain hotel in terms of its overall size, and standardised range of products. 

Large networks will typically have an in-house product research team whose role is to research the market regularly – ensuring a range of standard investment products that suit the majority of its customers. But more importantly, it can manage its compliance obligations more effectively across a range of standard products.

Put simply – if you want straightforward and tailored advice then a restrictive firm, despite its negative name, can certainly help you. 

But the advisor must make it clear to you that their advice is restricted and if the products they offer aren’t suitable for you, they must make this clear and recommend you seek advice from elsewhere.

Get expert advice

Whether your goal is to grow your pension, protect your income with protection insurance or shelter your estate from inheritance tax. 

We have both independent and restricted advisors on our platform ready to connect with you. Let Regulated Advice match you with a financial advisor for expert advice.