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Baited hooks and red herrings

Is multi-tying purely a commercial decision by advisers to get higher commission or does it really benefit the consumer by offering them a less confusing best-of-breed selection?

The multi-tie versus independent approach to depolarised life has been thrust into focus by last week’s news that Barclays Financial Planning has switched from a single tie to a multi-tie while financial adviser AWD has vowed to remain independent after buying Chase de Vere.

The two have rigorously defended their respective stances. AWD is adamant it can offer clients better service through its access to the whole of the market while Barclays Financial Planning stresses its consumer research revealed the public does want choice but not so much that selection becomes onerous.

Welsh IFA Buckles managing director Nigel Speirs says there is a distinct logic for bancassurers to multi-tie for over-the-counter sales but he believes any adviser doing so is just looking to boost their own profitability.

Like AWD, Buckles has vowed to retain its independence and does not see any value for its clients in offering a narrower range of products. Speirs says: “The question of multi-tie for us is where does it add value – 10 per cent more commission is the only way I can see. None of the insurers is thinking of taking liability for sales so it does not achieve anything for us.

“It would be the easiest thing in the world for us to set up multi-tie panels and I am convinced that more and more insurers are becoming worried about distribution and see multitying as a solution.”

Speirs adds that the dispiriting effect that multi-tying would have on his RIs, who are proud of their independent status, would also offset any enhancement to their commission terms.

But Prudential distribution director Andy Briggs believes higher commission is a red herring in the multi-tie versus independent debate and is not the certainty that many presume. He says many advisers are struggling to make a decent living and the electronic trading opportunities that are the cornerstone of many multi-tie arrangements will be more significant in boosting margins.

Briggs also believes that slicker trading processes and a narrower product range will enable advisers to service parts of the market they could not afford to previously. Moreover, those with strong professional connections will retain an independent arm to maintain these relationships.

He says: “The fundamental thing is that it is not all or nothing. If a business has a number of professional connections, they absolutely should keep a whole-of-market service open for them. But operating a narrow panel with electronic links in place will enable IFAs to make unprofitable areas of their business profitable.”

HSBC head of savings and investment Steve Britain, who has recently devised the bank’s multi-tie arrangements, says: “In terms of getting our advisers to understand the different products and providers, it is a lot easier and so training will be cheaper. But that is a by-product of what our customers told us they wanted from our proposition.”

Even within multi-ties, there are a range of approaches. Some distributors favour tying to a small number of providers for their entire product ranges while others prefer having different multi-tie panels for different product ranges.

Barclays Financial Planning believes the latter approach will distinguish its offering from other distributors and reflects the fact that no one provider is the best in each field.

Managing director Jim Reeve stresses that the firm’s approach is by no means purely commercially expedient, as its proposition would die in the water if it was not responding to customer demands.

He says another benefit of multi-tying is the opportunity to work closely with the providers on the panel to develop exclusive products.

He also questions whether a whole-of-market adviser faced with the choice of two near-identical products but differing commission levels will not always pick the more lucrative option.

Reeve says: “If IFAs have got two identical products, do they sell the one that pays them higher commission or higher fees?”

He says it could also be argued that multi-tying is little different from whole of market in that the bank has scoured the market to link to the best providers with the best products. He says many advisers take a similar approach through a short list they have drawn up, even inadvertently, based on their experiences.

However, Reeve and Britain are unsure how the bancassurers will stack up against advisers when the menu of charges is introduced. Like big networks and nationals, the banks clearly have the scale to negotiate better commission terms from providers than smaller IFAs. As such, Britain believes the menu will be distorted.

He says: “Inevitably, smaller IFAs probably will not be able to generate a deal like someone such as ourselves, so there will be more commission flying back to our advisers. The menu is misleading, though. What is important is what the customer is going to pay and the menu does not really articulate that.”

However the menu is perceived, if smaller advisers come out of it looking cheaper than bancassurers, that has to be positive for them in their battle against the behemoths.

Briggs is confident that the independent sector will remain vibrant and, rather than seeing multi-ties as a means of hedging against IFA distribution diminishing, the insurers are just tapping into what itself will eventually become a significant distribution channel.

Many more advisers are likely to select the multi-tie option in due course. For many, it could be the only economic reality. How the menu will affect these businesses and what impact it has on consumers remains to be seen but it is apparent that there is enough room in the market for a variety of models.

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