Restricted vs Independent Financial Advice

This content is for information purposes only. It should not be taken as financial advice or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult an independent financial adviser or financial planner such as ours here at Shorts in Sheffield and Chesterfield.

When you are looking for a financial adviser, it can be difficult to tell the difference between independent and restricted firms. More importantly, it is not always clear which option best suits your circumstances.

In this guide, we look at the main differences and similarities between restricted and independent advice so that you can make an informed choice.

Restricted Advice

A firm offering restricted advice will have certain limitations in terms of that they can recommend. For example:

They might only be able to recommend the products and services of one company. For example, a large banking group may be limited to their own products.
Some restricted firms will have a panel of companies to choose from. So for example, when recommending a pension for you, your adviser might have two or three pension providers to choose from. They will select the one that best meets your requirements.
Alternatively, a firm may be able to recommend products from the whole of the market, but be restricted in terms of the services they can offer. This means that a firm choosing to specialise in retirement advice is restricted in that they can only offer pension products.

It is the firm’s decision to operate on a restricted basis. This may be to simplify their proposition, to save on research costs or to specialise in one area. They will make the nature of the restriction clear at outset.

Larger firms might be part of a group of companies which all offer different services. By recommending products from within the group, this can increase revenue for the parent company.

Consumers may choose restricted advice because:

They have made their decision based on the individual adviser rather than the firm.
The firm is a large company with a recognisable brand.
The adviser will most likely have detailed knowledge of the solutions they recommend.
The adviser does not need to spend time researching new recommendations for every client and can spend more time on planning and building relationships.

However, some potential downsides of restricted advice are:

The products and services are limited to what is available within the restricted proposition. It’s not always clear if they are the best option in the market or simply the most appropriate from a narrow selection.
A restricted firm might choose its panel based on cost, service, investment choice, company partnerships or special deals. Not all of these factors necessarily benefit the client.
The adviser might not be able to advise on your overall financial situation.
Additionally, the adviser may not have full knowledge of the open market, to be able to identify when a product outside their range might be more appropriate.

Independent Advice

An independent adviser can make recommendations from across the market. They are not limited by company and will be able to advise on most mainstream pensions and investments.

This places added responsibility on the adviser, as they must demonstrate that the recommendation is suitable for the client after considering the available options. The firm has to undertake detailed research and due diligence to back up their advice.

Many firms do maintain an informal panel or centralised investment proposition. This is fine, providing:

The panel is regularly reviewed
All recommendations are suitable for individual clients
The adviser can make recommendations from outside the panel if appropriate.

Confusingly, some independent firms choose to limit their advice permissions. For example, few firms, independent or otherwise, now have the authorisation to recommend that clients transfer out of defined benefit pension schemes.

An independent firm might also decide not to recommend certain investments as standard. Many firms choose not to offer unregulated investments and do not include them in their research process. This does not mean that the firm is restricted, only that they have taken the view that some investments are generally unsuitable for retail clients.

The main benefits of independent advice are:

Independent firms are not limited in the products and investment funds they choose. They can recommend the most appropriate solution for you.
An independent adviser can look at your situation holistically and may have a greater breadth of knowledge.
If your circumstances change, an independent adviser might be better placed to alter your strategy.

Of course, there are some important points to bear in mind:

An independent firm needs to have adequate resources to monitor the market and make suitable recommendations. This can take a lot of work, and it’s important that the adviser has the right team and tools in place, whether these are provided in-house or outsourced.
An independent adviser also needs to strike a balance between consistency and customisation. Recommendations should be tailored for each client, but still follow a logical process.

Any disadvantage to independent advice lies with the firm. Maintaining their service (and doing so profitably) takes a lot more work, resources, and investment. Most independent advisers are not in the business to make their lives easy, but to provide the best options for their clients.

So providing the firm has the right infrastructure, there is no downside to choosing an independent adviser.

What Are the Main Differences?

To summarise, the main distinctions between restricted and independent advice are:

A restricted firm might only be able to offer products and services from certain companies, while an independent firm can access the whole of the market.
A restricted firm may alternatively be limited in terms of the types of products it can recommend, whereas an independent adviser can offer a range of solutions.
A restricted adviser will have a depth of expertise on their own proposition. An independent adviser is likely to have a wider knowledge of the different options available.

What Are the Similarities?

But before you decide which type of firm will suit you best, it is worth pointing out that both types operate in the same heavily regulated industry, and are certain standards they must adhere to. For example:

All financial advice firms need to be authorised by the regulator, the Financial Conduct Authority (FCA) and submit regular returns.
Advisers and other important personnel in the company need to have adequate qualifications, keep their knowledge updated, and maintain appropriate standards of conduct.
Recommendations must be suitable and avoid ‘shoehorning’ clients into the easiest solution. It must be made clear if the firm cannot meet the client’s needs.
Advisers need to clearly disclose their charges, which should not be conditional on the products recommended. Investment charges must also be clear and transparent.
Financial advice firms must be financially solvent and hold Professional Indemnity Insurance.
Treating customers fairly is one of the most fundamental standards across the industry.

Providing the firm is fully authorised and regulated, the advice will be covered by the Financial Ombudsman Service and the Financial Services Compensation Scheme. This means that if you have a complaint and were poorly advised, you can receive compensation if the firm stops trading and is unable to cover your losses.

While it might be reassuring to deal with a big name in financial services, many of the larger companies offer restricted advice. If you choose an independent firm, you can be confident that you will benefit from the same protection, but with a wider choice of solutions available to you.

Choosing an Adviser

Regardless of the firm’s status, choosing an adviser is a big step and is not to be taken lightly. You will need to be comfortable sharing your personal information and your life goals. A relationship with a financial professional should be long-term, so you also need to be happy to meet with your adviser once or twice a year.

Our top tips for choosing an adviser are:

Look for personal recommendations.
Always ask questions and make sure any concerns are addressed.
Avoid dealing with an adviser who is not open and transparent from the start.
Value an adviser who listens more than they talk in the first meeting.
After the initial meeting, take some time to think before committing to anything.
Do not be pressured into proceeding with anything before you are ready.

A good adviser will proceed in your best interests whether the service they offer is restricted or independent.

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