Consolidators face bias risk

26 November 2009 | By Leah Milner

Unregulated IFA consolidators that push IFAs to put client money into specific funds and on to specific platforms are in conflict with the RDR drive to remove bias, warns In Partnership’s Mark Pittaccio.

Pittaccio joined In Partnership earlier this year before being appointed to the network’s board as investment director in September and says he is concerned about the growth of this type of consolidator. He believes it goes against the direction the FSA is trying to move the market through the RDR.

He says: “We are concerned that the sole reason for an unregulated consolidator’s existence is to collect funds and then basically sell them off. I do not see how the regulator can regard a consolidator like this in the same way they can look at an advice business that is using an investment process to deliver quality financial planning to their clients over the long term.

“The purpose of the RDR is to remove bias , so when an unregulated consolidator says to an advice business, if you put all your business on to this platform and into these few funds we could potentially buy your business in the future, I do not know what creates a greater bias than that?”

Pittaccio is developing the investment proposition to offer multi-manager investment solutions for advisers but he says there is no pressure for them to do so. He says: “We are not being prescriptive on anything. All our advisers are whole of market and it is their decision which wrap, which back office and which investment solutions they use. We are building a de-risked process which they can plug into at any point.”

In Partnership’s investment proposition offers a range of multi-manager multi-asset solutions which are outsourced to investment firms. The network has arrangements with F&C, 7IM and Cazenove.

He says: “They are all risk-rated funds with asset allocation as their key driver and they are all reviewed and rebalanced on a regular basis, so it is a core sol- ution reflecting the main investment philosophies - active, passive, traditional and wider asset classes.”

In Partnership also has a range of 70 approved sector funds to enable advisers to adopt a core and satellite approach with their clients. The network is developing outsourcing links with discretionary fund managers. It already has agreements with Cazenove and 7IM, and is looking to develop more but Pittaccio is particular about how the relationship between adviser, DFM and client needs to work.

“It needs to be a tripartite relationship. I think the issue that a lot of advisers have with DFMs is that potentially they could nurture a relationship with a client on a wrap for many years to the stage where a DFM could add value but then you have to extract the client’s assets from the wrap to hand over to the DFM. The ideal situation is that when that decision is made the money does not need to move, so the DFM has the authority to manage a certain amount of client money but it never leaves the platform.”

Pittaccio is also looking at the possibility of offering white-labelled funds in response to adviser demand but he remains ambivalent over the value they offer to advisers and clients.

He says: “There is a lot of debate over the value and the delivery of those and that is very much a work in progress at the moment. I am a strong believer that financial advice businesses should be advice businesses and as soon as the perception is that they are moving into the manufacturing area, to a certain extent, the relationship with clients could potentially change.

“It is always a good idea that an adviser explains that a white-label portfolio is basically an economy of scale, to deliver whole of market investment to the client. If the client believes the adviser is selling its own funds, potentially the whole of market stance could be compromised.”

Before joining In Partnership, Pittaccio worked at Axa-owned Bluefin (previously Thinc) where he helped develop its wealth management proposition and move its advisers along the road to fee-based advice. He says it was a valuable learning experience but he decided to leave as he felt the relationships he had built up with fund firms might be compromised.

He says: “The intentions for the Bluefin business and the messages we were giving to our external investment partners were contradictory. I have a very good relationship with the investment community and the fund management groups had been extremely supportive with the transition programme that I was implementing.”

“I became very uncomfortable with the situation, knowing they were never going to receive anywhere near the fund flows that were continually being promised. It’s a small world and credibility is so important.

“I also just could not see a lot of the existing quality general practitioner advisers being able to trade effectively with the proposed changes in process. I was having too many fundamental disagreements so it was time to go.”

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