The pros and cons of independent versus restricted advice

When choosing a financial adviser, it’s natural to think that independent financial advice is better than restricted advice. The word ‘independent’ feels tailor-made and reassuring, while the word ‘restricted’ feels off-the-shelf and, well, restricted. So, what is the difference between them, and is one better than the other? Here we discuss their differences, the pros and cons of each, and what ultimately constitutes a ‘good’ adviser.

To choose an adviser based on whether they are restricted or independent is like choosing a pair of shoes because they are blue rather than black. There are so many other factors to consider, and ultimately choosing an adviser comes down to the individual needs of the client.  

What is the difference between independent and restricted?

The key difference between an independent and restricted adviser is that to be independent, an adviser must be able to show they have researched every relevant financial product on the market, and every provider supplying that product, before making a recommendation. They must document this process and fully justify their recommendation(s). On the other hand, a restricted adviser might only advise on one product area (such as pensions) but can recommend any product and provider within that market. Or they might only recommend the products and services of one provider, or a small panel of providers.

The advantage of an independent approach is that the client can be confident they are buying the most suitable product(s) available on the market at that time, and they can challenge that decision if it proves not to be the case in the long run. However, the process of researching the whole market can be time-consuming and costly, which can affect the cost and speed of the service the adviser offers. In reality, independent advisers are unlikely to be able to research the entire market for every single client and will therefore have a panel of go-to products for different scenarios.

Restricted advisers don’t have the freedom to recommend any product from the myriad choices available, but they may have teams behind them who research and vet products, in effect ‘short listing’ the options for them. This works well if the adviser is taking a holistic approach to financial planning, as it means they can focus more time on the client, and fully understand their longer-term financial planning needs. The adviser can also build expertise in the products they are recommending.

The bedrock of good financial advice

In reality, whether an adviser is restricted or independent is only one part of the decision-making process. Above all else, it’s important to ensure they are:

  1. Fully regulated

    Reputable financial advisers must be regulated by the Financial Conduct Authority (FCA) or Prudential Regulation Authority (PRA) and be able to show their ‘Statement of Professional Standing’. That means they must adhere to rules laid down to protect customers, and they must be qualified and be able to demonstrate fully up-to-date product knowledge. Being regulated also gives clients the peace of mind that they can complain and seek compensation through a third party if they need to.

  2. Appropriately qualified

    To be regulated, an adviser must have advice qualifications. As a minimum, they should have achieved at least a level 4 in either the CII (Chartered Insurance Institute) Diploma in Regulated Financial Planning, CISI (Chartered Institute for Securities & Investment) Investment Advice Diploma, or the IFS Diploma for Financial Advisers and Professional Certificate in Banking. Each of these qualifications has further levels to attain, up to and including chartered financial planning status.

  3. Clear on what their area of expertise is

    Some advisers will specialise in specific areas, such as mortgages or equity release. Others will offer a holistic financial planning service, including advising on pensions, investments, property, protection, wills and estate planning. It’s not a rule of thumb, but advisers who focus on one product specialism often prefer to be independent so they can access the whole of the market. Those who provide a more holistic financial planning service tend to take a restricted approach.

  4. Upfront and transparent about their costs

    A few years ago, financial advisers were paid commission by the provider of the products they recommended. This commission was ultimately paid by the client through upfront fees and charges, but many didn’t realise this and thought the advice was free. New regulations mean that advisers must charge clients a flat fee, an hourly fee, or a proportion of the money they are investing. The fee can seem expensive but, as with anything, you tend to get what you pay for. A good adviser will be upfront and transparent about their costs, aiming to justify that fee in longer-term investment returns and tax mitigation.


A good financial adviser does more than push products

Gone are the days when a financial adviser is there to ‘flog’ products that the client may or may not need. All advisers – whether restricted or independent – are highly regulated and must adhere to the code of conduct under which they operate.
For clients seeking a holistic approach to wealth planning (i.e. help with pensions, investments, estate planning, etc.), a good adviser will do more than ensure they are financially prepared for the future. They will prevent their clients from making irreparable financial mistakes and can ultimately save them money in fees and tax. They will also be on hand to make changes to their client’s financial plan should their circumstances change. Whether the adviser is independent or restricted should bear no influence on the ultimate outcome for the client. A good wealth planner is a good wealth planner.

Sarb Chahal
Senior Wealth Planner

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