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Channel tunnel vision

Multi-ties look set to become integrated into the financial product distribution system and fears are rising for the future of the networks.

A survey by financial services law firm Armstrong Neal shows 83 per cent of IFAs believe networks will become multi-tied. The industry seems torn over whether networks will play a significant role in multi-ties, be sidelined by providers and advisers or continue to focus on the independent market.

Scottish Life director and general sales manager Jim Gilchrist says he finds it difficult to see any future for the networks. “If training and compliance are taken away from the networks, what will advisers need them for. They will not need best advice panels because they are tied.”

The problem is no one knows how the multi-tie regulation will actually work. Gilchrist says you have to assume the FSA will not reinvent the wheel and that current arrangements for tied agents will not be changed.

In the scramble for distribution, providers are already approaching network bosses to offer multi-tied contracts.

But networks do not own their members and some life offices believe the rush to buy distribution is premature as many IFAs will keep their independent status.

M&E Network&#39s holding company Tenet chief executive Simon Hudson says the industry used to operate along the lines of a multi-tied system and says product providers already have experience of the high cost of owning a distribution channel. Training and compliance costs would prove more expensive for the provider than IFA distribution so why would providers want to go back to this system when they have organisations, such as networks, with these services already in place to act as a third party?

Hudson believes networks already have an advantage. He says: “Multi-ties are likely to cover all the major providers and we already have relationships built up with them.”

The other side of this coin, however, is that multi-ties could pose a threat to the networks rather than the providers. Why would advisers want to use a third party when they could tie directly with the product providers themselves? The services provided by networks, such as business development advice and marketing support, could be obtained from the providers.

But yet another question arises where, in a multi-tied situation, a provider is taking responsibility for the adviser so why would they want to pay for someone else to take responsibility for their training and compliance?

If providers were entirely responsible for the tied agent they would carry the can for mistakes and Hudson wonders if a provider would want to take responsibility for the sale of someone else&#39s product when a network could act a third party and take care of the compliance.

IFA Network managing director Nick Ansell believes financial advice is a relationship business and says his members have established relationships with their clients and changes will not make any difference to those relationships.

He says: “There will always be room in the market for independent advice. I do not see it making a huge amount of difference. The public is not going to flock to multi-tied advisers just as a consequence of it being available. If anything, there will be a greater demand for the networks&#39 services and relevant training for how IFAs should drive their business in the future.

“There is a need to examine how their business is running currently and create a business model which they will need to survive and support is needed from networks to show them how to move forward and networks are perfectly placed to direct them.”

Clerical Medical head of strategic marketing David Shelton suggests a direct relationship between provider and adviser could work if there was a lead provider taking the majority of the business. A provider might be prepared to give additional support to the adviser because it was getting a bigger share of the business than would have got previously.

But Shelton says, in a 1 per cent world, providers might not be able to afford to do this. He says: “The IFA channel is a very cheap, efficient route to the market and if multi-ties prove to be more expensive distribution method questions will have to be looked at.”

This situation is not clear cut and again adds weight to the networks&#39 argument. As a third party, the networks are on middle ground.At present the arrangement is networks carry the compliance responsibility and if it works now, why should it need to be changed in a multi-tied environment.

The third strand to this debate is whether there is a need to become multi-tied at all. There is still a firm belief that the independent sector will stand its ground and continue growing, in which case, the relationship between networks, providers and IFAs can stay as it is.

Until the FSA releases more details about how this system will work, it is too early to say what will happen and the industry is hedging its bets.

IFA Excalibur managing director Andrew Baguette says: “If my network decided to go multi-tied, I would not see any benefit of being part of it. The benefits of being part of a network is having access to its research and buying power but this would be irrelevant because if it is tied as there would be no benefit.

“But I would not consider going multi-tied anyway. If you are independent, you are looking at the whole marketplace. It is wrong to limit yourself. It is a bad step all in all.”

DBS sales and marketing director Mark Summerfield says: “We do not accept that the consultation will lead to further dilution of polarisation and we support Aifa&#39s fight for independent financial advice and that the consumer is voting with their feet in favour of independent financial advice and the IFA.”

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