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Commentary: Multiple choice

Much has been said about the multi-tie market but how will distribution change after the ending of polarisation?The models being discussed seem to include five or six of the biggest providers in the UK, who represent more than 70% of the market.

In a world where products are becoming almost identical as far as charging structures and design are concerned, the debate on what company a client uses to solve a generic problem, is almost irrelevant. A client’s priority seems to be service and return on the investment, and as most providers adopt a multi-fund manager route for investments and pensions, the product provider has effectively become an administrator.

The bigger debate should be what service do clients need and what’s the most appropriate charging structure?There is much debate about fee-based advice versus commission-based advice and multi-tie versus IFA. The argument, however, should focus on transaction-based process versus an advice-led process.

Advice can only be independent if the client pays for it. This tends to be clients who have acquired a level of financial security, who are paying for advice around asset allocation and management of their existing assets. How many UK people have this level of wealth, probably less than 2%. The rest of the market are aspiring to accumulate wealth through various products and tend to be transactional in their behaviour. It’s this environment that is most suited to multi ties.

The best model is for the client to have a choice on all of the services available. This can be achieved through effective client segmentation.

Lets talk about the commercial reality in being a distributor in today’s market. The service level a client demands is high but service costs money and can only be provided from firms that make money. Therefore, distribution models need to be re-engineered.

The old-style commission sharing models of most IFA Networks is defunct; the payaway to advisers is too high and the business governance and management of the organisations too weak. The idea that networks have the clout to influence the majority of their membership to become multi tied is also flawed. Most networks are made up of 100s of independently owned small businesses and it will be these firms that are key to the launch of multi-tied networks.

It’s fine for networks to say they have a multi-tie proposition but unless the owners of their member firms have enough business acumen to segment the client base and retrain the advisers to be multi tied, then most will struggle through as transactional IFAs. This is because IFAs gave up selling products years ago and focused on selling concepts, for example the concept of a pension.

But in a multi-tied environment this will mean they have to sell a selection of pensions over and above what is also available in the rest of the market. The danger is that advisers remain as transactional IFAs but claim to be fee-based for a service they don’t deliver.

With the ending of polarisation all ethical advisers will give their client a choice of models that suits the clients needs. UK advisers must prepare their client base for this and ensure their business is prepared for change.

Simon Chamberlain is chief operating officer at Thinc

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