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MM Leader: Providers' direct tactics are misjudged

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As we move closer to RDR implementation, the FSA is expecting product providers to have a structure in place to deal with orphan clients created by advisers leaving the industry.

However, the aggressive clientmailing strategies used by certain firms begs the question of whether regulatory obedience is being used as an excuse to lower trail commission bills and take a greater share of direct business from IFAs.

Last week, Money Marketing reported on a mail out from Standard Life offering clients the chance to win an iPad 2 by filling out a form confirming their details plus a tickbox if they no longer deal with their adviser. A tick will lead to any trail commission being cut, although not rebated back to the client.

Advisers also raised concerns about client letters sent out by Friends Life earlier this year.

With tough economic conditions likely to continue, trying to turn off a large percentage of trail commission paid to IFAs and increasing your direct proposition may sound like a sensible plan of action. But such moves risk the loss of a considerable amount of goodwill from a sector that provides these firms with a large share of their profits.

The trail commission may have been paid purely as an alternative to a higher up-front charge with no expectation of ongoing service.

The best defence against such tactics is regular contact with clients and ensuring they are happy with the service provided. The FSA’s new RDR remuneration rules mean trail commission will disappear soon after January 2013 for active investment clients anyway, with any new advice paid for through adviser-charging.

If providers want to remain relevant and successful in the distribution area, they should be working with advisers to ensure first-class long-term client outcomes rather than attempting a land grab to achieve some short term gain.

Why this pursuit?

Aifa is right to demand answers over the way the Financial Services Compensation Scheme is conducting its pursuit of Keydata advisers, particularly smaller firms, where such actions are unlikely to be cost-effective. Also, these firms will not have the resources to defend themselves in court. The blanket pursuit also takes no account of individual circumstances or the advice given. The FSCS must explain itself.

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Readers' comments (3)

  • So just how many tens (or possibly hundreds) of thousands of clients does the FSA expect to be orphaned after 2012 and what is the FSA's threshold in terms of an acceptable number of adviser:client relationship casualties?

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  • I don't blame the big insurers for this approach. They know that IFA's are not going to recommend their low quality products and administration any more.

    RDR breaks the link whereby these companies could look after advisers financially and there will be no sound reason to recommend them going forward.

    The big danger is that insurers will use these orphan client banks as a carrot to tempt firms that can no longer call themselves independent into doing tied deals to the detriment of the people they advise.

    The FSA's silly independence definition will mean that many sound independent firms will no longer be able to use the hard won independent tag. If this is lost it will be hugely tempting to do a deal with a big crappy insurer in return for financial support and a client bank.

    Watch them get their cheque books out. It will be hard to say no.

    Many clients will end up in inferior products as a result and the law of unintended consequences will continue to ravage the poorly thought through rules of RDR.

    FSA - why not work with us for the benefit of clients rather than against us for the benefit of the banks?

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  • There is a strong rumour afoot that a recent Panacea Survey has created a regulatory firestorm. The survey claims to be the first “true” IFA consultation over RDR and the results promise to be a significant embarrassment to the FSA. The survey closes today at 5 pm but you can participate in it still at: https://www.surveymonkey.com/s/rdrsurvey2011

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