In the run-up to the RDR, churning clients was a real concern. The FSA was alive to the risk that clients would be moved into new products before 31 December 2012 in order for advisers to “bank” trail ahead of the RDR deadline.
Nowadays, there is a different name above the regulator’s door but the issues the FCA is grappling with are all too familiar.
The FCA does not use the word “churn” in its latest report on how consolidators are treating acquired clients.
What it does say is, despite seeing some good practice, “we were disappointed none of the firms assessed were able to show that clients’ needs were suitably considered. While firms focused on the commercial benefits, they did not focus on how clients were impacted by the acquisition.”
If clients are being switched into centralised investment propositions that suit the consolidator more than the client, to me, that sounds like churning.
The FCA’s language is nuanced, but what it is saying is actually quite explicit. Consolidators are failing to explain to acquired clients how their advice service will change, and that the charges will be different. Where these issues are set out it is after the event, that is, when the acquisition deal is done.
Ongoing advice charges are being taken despite no ongoing service being delivered. Deals give way to conflicts of interest where sums payable are contingent on in-house investments. Adviser pay is structured on the basis of replacement business, and repeat initial charges for advice are not being factored in.
“If clients are being switched into centralised investment propositions that suit the consolidator more than the client, to me, that sounds like churning.”
The old haunts
Though the FCA has stopped short of enforcement, the report makes for a very sorry charge sheet.
We hear stories of business plans drawn up to target assets, and long-term incentive plans based on the amount of money coming in. If we are hearing this, the FCA should be too.
We have been here before of course. Whether the discussion is about consolidators or vertically integrated firms, the end goal is the same: the pursuit of assets under advice. Where client service fits in I am not too sure.
I heard an analogy recently that the advice market is becoming less cornershop and more supermarket, with IFAs becoming more akin to high-end boutiques. Consolidation appears to be the way of the world, with no one to apply the brakes to this particular bandwagon.
I have come to terms with the new reality. But that does not mean I do not still hanker for more boutiques.
Natalie Holt is editor of Money Marketing