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&#39Independent&#39 will be consigned to the past

For IFAs who do not switch to defined-fee arrangements, the full effect of CP121 will only really hit home the day the odd-job man comes to scrape the word “independent” off the office windows.

Under the regulator&#39s proposals in CP121 for the abolition of polarisation, advisers that do not choose to accept the defined-payment system of remuneration, thus remaining IFAs, will have to axe “independent” as well as words such as “impartial” and “unbiased” – not just from their names but also from all marketing literature and client letters.

A new name on new stationery, marketing literature, business cards, websites and premises will leave the new authorised financial adviser or multi-tied adviser thinking hard about what his clients are thinking about him.

Many who make the switch will assume their clients will not notice, but if the word “independent” is not that important then one wonders why the regulator is investing so much energy changing it.

There will be clients who note the change in the way the adviser has to do business once he becomes an authorised financial adviser, and IFAs erstwhile competitors will make all they can out of the change in status of those advisers choosing not to go down the defined-payment route.

Riach Independent Financial Advisers proprietor Bob Riach says: “My office is directly opposite a high-street bank. I can see them all in there and they can see me. Their advisers will clearly be able to say &#39Look at him he used to be independent, but he is not independent any more&#39, which is what we say about them now. This will cause concern amongst my clients.”

Like many IFAs, Riach is concerned about the cost of losing independence from his title will have both in the short and longer term in the minds of his clients. Riach says: “There are the direct costs of stationery, signage, marketing and time spent implementing the changes, but there is also the upheaval for the clients – some may wonder if I have been de-authorised.”

PMI Independent Financial Adviser director John Stewart says: “We will have amend our 16ft sign. Dropping the word &#39independent&#39 will be unfortunate for us.”

The change is likely to affect thousands of advisers, with trade body IFA Promotions pointing out that it has over 10,000 firms registered on its books, of which 10 per cent have the word “independent” in their title – and this does not include those incorporating the letters “IFA” into their name.

Last year 263,000 people contacted IFAP for a list of local IFAs, generating £18m in commission for advisers according to research from William M Mercer. Of these leads, 80 per cent came to IFAP from referrals from a host of organisations such as the FSA, Citizens&#39 Advice Bureaux, employers, pension schemes and product providers.

It is likely that under CP121 future leads will only be referred to advisers offering advice on the whole of the market, but if multi-ties prove more commercially viable than the authorised financial adviser model recommending on the whole market, then IFAP will have less people to refer on to, to the detriment of the consumer.

IFAP chief executive David Elms says: “It all comes down to the market advantage of being an authorised financial adviser – we do not know what that will be. If it is not great you will get a bigger multi-tie sector and you will see whole-of-market advice decline.”

IFAP itself might have to change its name if the FSA&#39s proposals are accepted as outlined. Many IFAs who intend to go down the authorised or multi-tie route are unhappy at the loss of goodwill resulting from the change of name.

Leeds-based firm IFA Ltd has a name that encapsulates the problem. If it does not adopt the proposed defined-payment agreements it will have to change to something entirely different. Any new name will bear no relation to the present one and the client confusion and loss of goodwill could be substantial.

IFA Ltd adviser Keith Jackson says: “We will call the firm &#39Individual Financial Services Ltd&#39 and play the FSA at their own stupid game. IFAs are doing a good job getting people saving and all the regulator is doing is going around putting negative vibes in consumers&#39 minds.”

IFA Ltd&#39s spirit is admirable, but the proposed rule changes currently say firms cannot “use a synonym for independence”. Firms that hope to set up an IFA arm and an AFA arm will have to think carefully about how the two sides are marketed, as the regulator is not likely to allow a situation where consumers think one side is being discussed when it is in fact the other.

In a written reply to an IFA question in Money Marketing recently, FSA head of polarisation review David Severn made clear that any firm not adopting the defined-payment system would have to drop the word “independent” from their name. Since then noises from the FSA have signalled a possible softening of position.

An FSA spokeswoman says: “It is not yet set in stone that you will need to take &#39independent&#39 out of your title. This is a consultation and we are looking at the effects.”

While the FSA says it is taking on board what people are saying about the matter, it does confirm that: “If our proposals go ahead, anyone with the word independent in their title who is not independent will have to take the word out of their name.”

The reality for many IFAs is that unless there is a radical change of heart from the regulator over the future of polarisation, they will have little choice but to start thinking of an alternative name and to begin saving up for new stationery and a new facade for their business.

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