MULTI-TIE EDGE: Ken Davy
The future for the genuine IFA is becoming more positive by the day and rather than fearing the multi-tied dealmakers, IFAs in networks should use depolarisation as an opportunity to take control of their own destiny On reading in last week's Money Marketing that Prudential expects to take about a quarter of Sesame and Millfield/Inter-Alliance business I could not help but wonder whether they really have any idea of what they are talking about or indeed who they are talking about?
One also has to wonder who these organisations think writes the business they are so keen to share out in these cosy multi-tie deals. Not themselves, that is absolutely certain, indeed, in most cases I doubt that they have ever advised a client or written a piece of business in their lives.
The reality is that the business to which they refer is written not by them but by thousands of hard-working independent advisers across the country – individuals who work hard, not only for themselves, but for their clients, often spending far more hours solving a client's financial problems than could possibly be justified in terms of the commission income generated.
What is more, as financial advisers, they are in most cases building their own independent businesses and client banks by delivering high quality advice based on trust, service and choice. It is not overstating the case to say that each IFA is winning the trust of his clients one person at a time, one family at a time and one business at a time.
Hand in hand with these values of trust, service and choice is the independent adviser's ability to deal on increasingly equal terms with their own professional connections and those of their clients.
The result is quality IFAs, building quality businesses by giving quality advice.
The last thing that they or their clients need is to be told that now, instead of providing independent advice they are “expected” to advise a quarter of their clients to take out a Pru policy whilst another quarter should take an xyz policy, etc, etc.
IFAs joined networks in the expectation of business support, not to have their businesses destroyed.
I also wonder what subliminal pressures will be applied to persuade network members to sell the products of the multi-tied companies. Will it be a Sword of Damocles hanging over their heads or a more subtle combination of threats and bribes?
Even if you took the view that you could buy an IFA's favour for an extra 10 per cent commission, which all my experience tells me is nonsense, why should an IFA put his personal reputation, professional connections, professional standing and a significant proportion of his current business at risk, just to be paid a bit more on the business which is left. Quite frankly, for an IFA, it is the economics of the madhouse, the multi-tied madhouse.
The banks, of course, are in a different position altogether. For them, the ending of polarisation provides a heaven-sent opportunity to offer their customers the impression of more choice while still selling them more expensive products. Not that this should surprise us as we all know what an excellent reputation the banks have for putting their customers' interests before their own profits.
This, however, brings us to one of the uglier aspects of depolarisation as the product providers scramble to secure what they imagine will be greater distribution through these big ticket, multi-tied deals. This is the ability of the mega multi-tied groups to be able virtually to name their own commission or side-benefits on the basis that the product provider will simply charge the client a higher premium.
The good news for genuine IFAs is that thanks to the law of unintended consequences and the increased transparency that accompanies depolarisation, the more of these deals that are done the more business there will be for the IFA.
He or she will have all the business benefits I have already mentioned, plus the choice of the whole market from which to meet a client's needs. One of the beauties of being an IFA is that one is rarely in competition. However, if an IFA is in competition with a multi tied agent, the independent adviser and his client will have access not only to a wider choice but also to better priced and more competitive products.
The future for the genuine IFA is becoming more positive by the day and rather than fearing the multi-tied dealmakers, IFAs currently in networks should use depolarisation as an opportunity to take control of their own destiny. I believe that networks and the mega-merger firms are failing completely to meet, or even begin to understand, the aspirations of individual advisers.
IFAs now have a golden opportunity to vote with their feet by becoming directly regulated. They will then be free to build their own firm and their own futures. A future where they, acting in their clients best interest, will decide where they place business, not have it decided by a head office that has no conception of the high quality role and service being delivered by individual IFAs to their clients.
Ken Davy is chairman of Simply Biz
MULTI-TIE EDGE: Martin Davis
The market is fragmenting and there is no one-size-fits-all solution. That is why Sesame is positioning its multi-tie proposition as an additional choice of advice style for advisers within our overall portfolio of services The concept of multi-ties is at the centre of the depolarisation debate at the moment. The intention is for firms to offer products from small panels of providers, with some firms choosing to go multi-tie for some clients while remaining whole of market for others.
These panels are likely to comprise a handful of well-known product providers. Finding the ideal blend of providers will be crucial in order to get the right product coverage from financially strong brands and deliver compelling choices for consumers and financial advisers.
But to focus on multi-ties without setting this important development within the wider context of depolarisation is simply adding fuel to the fire. Many advisers have built their business on the bedrock of independence and will continue to offer the widest possible choice to their clients. Over the last two months, we have held face-to-face meetings with thousands of our members. We fully expect the majority of them to remain independent and Sesame will continue to use its scale in the market to drive the best possible deals for IFAs.
Why consider changing at all? The reality is that our industry is under pressure like never before. I accept this may at first appear to be well-trodden ground but the changing nature of financial advice will undoubtedly lead to banks and supermarkets seizing this new opportunity. We expect a large proportion of tied distribution to convert to a multi-tied offering and this will give them the ability to market a selection of well-known provider brands. Add to this the sophisticated client management tools that some of these companies employ and the threat posed by these new propositions becomes more real.
There is a view that because multi-tie advisers will have fewer providers to deal with, they will be able to spend more time with clients who are already predisposed to buy products offered by the brand names available through the multi-tie panel. In addition, it is likely that multi-tie propositions will offer a number of streamlined elements, such as e-trading, which will also help advisers devote more time to their customers.
Of course, this additional choice and accessibility for consumers is a key pillar in the FSA's depolarisation objectives. The IFA working with the wider market will still have a product advantage but nothing like the current position.
Advisers should closely scrutinise their business model and it is clear that client relationships will be fundamental to the decisions that advisers have to make. The decision about your blend of advice offerings will be determined by the advice needs of both your existing client base, along with the client base you want in order to run a successful business in the future.
The market is fragmenting and there is no one-size-fits-all solution. That is why Sesame is positioning its multi-tie proposition as an additional choice of advice style for advisers within our overall portfolio of services.
What is the key to a good multi-tie? It was positive that research to identify the drivers for firms considering multi tie found that commission rates did not register that highly.
IFAs reasoned that the improvements that may be borne from a multi-tie offering, such as innovations in technology and service, were more important.
First, any multi-tie offering must meet the needs of all stakeholders – advisers, clients and providers. The providers capable of doing this are likely to have strong brands and track records that appeal to advisers and their clients. They will need to have credible offerings across a core range of products. They will also have to have the ability to deliver enhanced service capabilities and a strong desire to continue to invest and improve in the future. What is clear is that this is not being driven by commission, but is ultimately about having a strong business proposition that will appeal to consumers.
The choice facing advisers and firms will initially be an emotional one, whether to remain truly independent or partially forfeit independence to pursue a more transactional multi-tie model or a hybrid model.
Many of the early adop-ters of multi-ties will be big enough to forfeit their independent status and assign designated advisers to service both whole of market and multi-tie propositions. They may establish separate legal entities, one trading as an IFA and the other as a multi-tie financial adviser that is clearly differentiated.
As for the lie of the land after depolarisation, Sesame expects that is will be a case of survival of the fittest.
From a network perspective, it will be those organisations with the scale to deliver a compelling multi-tie proposition and there are only likely to be two or three multi-ties that are robust enough to operate successfully beyond the first 12 to 18 months.
In discussions with IFAs, it was inspiring to be reminded of the resilience that our industry has in adapting to change. The death knell for advisers has been sounded many times before but by anticipating the changing climate, appreciating the threats and seizing the opportunities, advisers will continue to prosper.
Martin Davis is commercial director of Sesame