FSA sends out warning on IFA consolidation vehicles
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The FSA has written to all small firms warning that if they are joining an IFA consolidation vehicle as a means of exiting the market they ensure the new solution is suitable for all clients.
In its latest small firms newsletter, the regulator says any IFA considering consolidation to exit the market must manage potential conflicts of interest brought about by a consolidator’s business model, particularly when looking at wrap.
The newsletter says: “Typically the consolidator firm will put the adviser firm’s customers onto a wrap platform for ongoing servicing and the client bank at a later date. This appears to be a growing trend in the financial adviser market in particular. A number of these consolidators are not regulated firms, so they aren’t regulated or supervised by the FSA. We would like to remind firms they must continue to act, honestly, fairly and professionally in line with the client’s best interests.”
The FSA says if an IFA is considering the consolidator route they must have appropriate systems and controls in place to identify and mitigate the risks arising from conflict of interest. This includes transparency over any inducements to advisers to recommend particular products.
Firms must also demonstrate that they are continuing to treat customers fairly, and any additional costs to the customer need to be suitable for their individual needs and circumstances.
The newsletter says: “It is not enough to disclose these and agree them with the clients before the transfer.”
It continues: “Many consolidators claim their business models will save adviser time, maximise revenue streams from client investments and allow firms to concentrate their efforts on financial planning rather than fund selection. This added value to the IFA should not be to the disadvantage of the customer.”
Finance and Technology Research Centre director Ian McKenna says: “This has major implications. It is another nail in the coffin of the argument that you can have a single wrap platform.”
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Readers' comments (24)
Middle England | 20 Oct 2009 11:51 am
The FSA is putting the jack boot in even as the IFA tries to exit with some dignity!
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Anonymous | 20 Oct 2009 11:52 am
Further proof that the FSA is way past its sell-by date. Roll on a Tory election win.
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Anonymous | 20 Oct 2009 12:05 pm
When are the FSA going to get their head round the fact that the market has already moved on. Independendce is now primarily at fund level not provider / product level.
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Anonymous | 20 Oct 2009 12:11 pm
And just what makes you think a tory government will be any different? These people are civil servants they are about as easy to move on as a mountain is.
I wonder how they regulate someone who has just had enough and closed up shop...Is that any better?
Troubled times that are going to be more troubled for a time.
Question for the fsa: Why are we posting anonymously?
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Evan Owen | 20 Oct 2009 12:31 pm
I hope this also applies to the likes of Resolution.
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Anonymous | 20 Oct 2009 12:37 pm
Can't they think of anything else to get the poor old IFA?
Since the FSA has realised that the IFA is probably the only source of creditable, honest, caring independent advice, things have been very quiet on the 'Get the IFA' front.
Well obviously there has been a gofor beavering away in the cellars of HQ, under strict orders, trying to find something - well, here it is.
Incidentally, has no-one registered the fact that all this recent buzz about poor mortgage advice has probably had NOTHING to do with IFAs simply because, before any mortgage recommendation comes from an IFA, the clients usually have had a means (affordability) test completed - as standard practice when completing the fact find. Again, very quiet on the 'Praise the IFA' front also.
And another thing - who exectly is representing IFAs these days?? Whoever you are, you are very quiet.
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Anonymous | 20 Oct 2009 12:39 pm
The Greeks, they say, had a word for it. The Romans had an expression: 'The rigour of the law is the height of oppression'. Rigour of course means stiffness, as in rigo(u)r mortis. Hey-ho for the last rites.
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Neil F Liversidge | 20 Oct 2009 12:45 pm
We certainly cannot count on anything being different under a Tory overnment dominated by the Victor Meldrew tendency who, according to the FOS themselves, make up the majority of complainants. The message from the FSA is loud and clear - "Whatever you do we will find fault with it, because that way we keep our soft jobs and fat pay packets, and that way we can justify employing more subordinates to insulate us further from reality."
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Anonymous | 20 Oct 2009 12:59 pm
You undermine the justifiable criticism of the FSA (and theres lots!!) by disagreeing with EVERYTHING they say. I dont see what could be controversial about this story above - it effectively says that actions you take must be in your clients interests and you should disclose when theyre not. How could anyone argue with that?? Some of these "consolidator" propositions have looked pointless and counter productive when considered from the clients perspective, especially when there are other ways of achieving the same end result without disadvantaging the client
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Anonymous | 20 Oct 2009 1:02 pm
Like the rest of you I've simply had enough. The FSA are simply a bunch of nit picking bueacrats with little or no understanding of the industry that they regulate.
Although the prospective Tory Govt. will hand over the powers of the FSA to the Bank of England, the FSA themselves (according to a good friend of mine that works there) simply expect to change their name to the Consumer something or other and carry on blighting our lives in the same way that they do now!
Haven't heard much from AIFA recently - hope John Gummer is paying attention as this is his one and only chance to be able to make a relevant difference for the industry he represents.
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