Open letter to FSA chairman Howard Davies
According to the March 1 edition of Money Marketing, the FSA has recently issued regulatory guidance concerning the remuneration of IFAs, where a product provider is offering admin support in respect of decision trees.
My understanding of the FSA proposals is that where an individual prospective investor is lead through a decision tree by an employee of the insurance company, rather than the IFA, then the FSA will not permit that product provider to subsequently remunerate the IFA for introducing this client to them.
My understanding is that the FSA stance on this is driven by the indirect benefit rules.
If this situation is indeed as outlined above, then may I respectfully urge you to reconsider your position in this matter. This proposed restriction would be anti-competitive, an unwarranted and arbitrary intrusion on the relationship between product providers and independent intermediaries and, most importantly, it would undoubtedly impede the free distribution of stakeholder pensions.
Independent financial advisers and product providers exist in a close mutually dependent relationship. IFAs introduce clients to product providers, who in turn provide a range of services and facilities to the clients of IFAs as well as paying remuneration to the IFAs if requested so to do in recognition of the new business introduction by the IFA.
Clearly, it is impossible to regulate precisely every single aspect of the relationship between product providers and IFAs. For example, product providers provide investment services, application forms and online information.
They also provide the client with a lot of information concerning taxation and legislation.
It has already been acknowledged that the so-called tree-walking process is not a regulated sales activity. As such, it is no different to any of the other provider-to-client interactions which may be subject to overall regulatory control but which of themselves should not be subject to specific regulatory constraint.
To impose such regulatory constraint will inhibit the functioning of the free market and is an unnecessary intrusion upon product providers' ability to distinguish their own individual proposition by virtue of the added value services that they can provide to intermediaries.
Stakeholder schemes can be set up on a variety of bases, as individual or group arrangements, through an employer or directly with a member, on a commission or a fee-charging basis and with the fee being charged either to the employer to an individual.
In all these cases, the IFA is contracted by the client to provide a service to them. The FSA appears to be suggesting that, where individual members of a group have taken advantage of a tree-walking helpline, then the intermediary will have to go back and renegotiate the terms of his fees with the client.
This does not appear to be in anybody's interests as such a position would exclude many smaller IFAs from the stakeholder market altogether, thereby reducing distribution outlets and inhibiting take-up. Is this what the Government wants?
I am at a loss to understand the logic behind your proposals, which do not appear to deliver any benefit to anyone at all. Basically, the whole idea is daft. Please drop it.
Thomas McPhail Pensions development manager