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Causes for concern

So far this year, we have seen volatile stockmarkets, a painful credit crunch which still has to reveal its full damage and rising distribution costs.

Analysts Plimsoll Publishing has just published research showing that from the 1,379 IFA firms it looked at, 892 of the bigger firms were in a good position to merge or buy other advisory companies. It revealed that it found 370 IFAs and mortgage brokers that would make good strategic acquisitions. But what really happens when financial services companies buy or merge or even agree to partner other companies?

In feedback to its platforms discussion paper published this week, the FSA is saying that it has worries over how advisers manage conflicts of interest on all platforms, including adviser-owned wraps. It is worried about conflicts of interest, potential increases in consumer costs and inappropriate investment advice.

As David Ferguson says: “The FSA should be concerned about any market activity that puts an IFA’s interest before a client’s but I do not see how it relates to ownership of wrap platforms more than anything else.”

But I ask you what concerns does the regulator have when banks buy distributors? If I recall correctly, there is a big cheer as it is believed that the more financially stronger can aid the poor distributor.

Think about Axa having bought Thinc. The bright lights of Thinc have moved on. The guy who masterminded Thinc, Simon Chamberlain, then Roderic Rennison, who proudly worked with the FSA on the RDR.

I saw him standing on platforms saying that qualification levels should rise but we know from the YouGov/Money Marketing survey that 22 per cent of IFAs will not work to pass AFPC. I hear that the RDR implementation date may slip which is not a bad thing.

The poor consumer will be so confused with the new terms PFP and GFAs, particularly if they a have paid to see an IFA for years. It does worry me, this RDR changeover that could lead to all sorts of disruption.

Bradford & Bingley comes to mind, where overnight 500 IFA branch addresses were lost as they became a single tie to Legal & General.

This week’s news shows that Bradford & Bingley has appointed Legal & General to manage its £400m multi-manager portfolio. The argument for this appointment is that there is a lower AMC of 1 per cent. But guess what? There is a performance fee payable to Legal & General of up to 1 per cent. These ties and ownerships need to be properly explained.

But does the financial strength of a parent company help the smaller brands? First Direct, which we all know is part of the mighty HSBC, is halting mortgage sales to new customers. The interesting thing is that First Direct is primarily funded by customer deposits rather than expensive wholesale markets. As a result, their mortgage rates are generally lower than many of their competitors. But I ask you what is HSBC doing about helping First Direct? As HSBC march on to try to dominate China and the Middle East, surely now is the time to dominate the UK lending markets?

Meantime, investors are running scared as societies saw the highest February inflow of savings for more than 10 years, according to the Building Societies’ Association. Net receipts of £1.35bn in February 2008 were the highest level of February inflows since 1997.

This run to cash, and I believe gold, makes me worried that we need to turn the tide and pinching one of the current New Star advertising slogans “sometimes the best time to invest is when it feels like the hardest” is a theory we need to educate the consumer on.


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