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Dark MacLeod has no silver lining for small fund firms

Abolishing polarisation could mean the fund management industry comes to

be dominated by a handful of providers with the biggest marketing budgets.

This stark warning was delivered by Investec managing director Jamie

MacLeod at the annual Sway conference in Madrid.

MacLeod urged 100 of the UK&#39s top investment advisers gathered for the

Sway Senate Programme to support the current polarisation rules. He claimed

the regime is best not only for the industry but, most important, for

private investors, who understand and appreciate the role of independent


He voiced fears that any move to multi-ties will lead to smaller players

being pushed to the fringes of the industry as the big guns splash their

cash to buy distribution.

MacLeod&#39s warning has come as the Treasury and FSA assess whether to

abolish the current regime in the second phase of the polarisation review.

The FSA has already depolarised stakeholder pensions and direct-offer

advertising as part of the first phase of the review which came into effect

on April 6. It is now weighing up whether to depolarise all financial


Issuing a rallying call to the industry, MacLeod said: “The industry must

support the debate that it is good for private investors to receive

independent advice. The current regime is best for the private investor and

we must do what is right for the investor.”

He believes the introduction of multi-ties would result in investors being

left with little choice as the bigger players grab distribution.

Forecasting the future under such a new regime, MacLeod said: “Imagine

multi-ties. What investors would get is the product that would have used

its marketing muscle rather than its product integrity.”

His views have received widespread support from IFAs and smaller fund

managers who believe the abolition of the current regime would not only

pose a threat to the way they conduct business but would seriously restrict

consumer choice. They point to the fact that big does not invariably mean


Exeter Fund Managers managing director Ian Jolliffe says: “Clients are

already confused between IFAs and tied advisers and all that a blurring of

the rules would do is to confuse them even more.”

He believes that, contrary to opinion of the FSA and many others in the

industry that depolarisation would open up competition, it would have the

reverse effect.

Jolliffe says: “I think Jamie MacLeod has made a good point but if

multi-ties are introduced it would not be the end of the smaller players.”

He suggests such a move by the regulator would cause fund management

companies such as Exeter to reconsider their strategy and focus on the very

top end of the current IFA market.

Plan Invest joint managing director Michael Owen says: “I think there is

quite a risk that multi-ties will provide a cosy relationship for larger

players and the smaller groups would be frozen out.”

Hargreaves Lansdown head of research Mark Dampier suggests many of the

bigger players such as AMP are already flexing their corporate muscles and

looking into buying distribution. He says: “Clearly, some of the big

players will go to multi-ties as a way of controlling distribution as

currently IFAs call the shots as the biggest distribution channel. If they

could get the main form of distribution under their control, they would

control the whole lot and would be in heaven.”

Dampier believes the smaller fund managers with most to lose are

volume-driven players which rely on a wide distribution network to secure

business but that other smaller providers, such as Liontrust, would not

suffer as their emphasis is not on volumes.

Liontrust acknowledges the threat posed by such a scenario but marketing

director Jonathan Harbottle says IFAs will always feature in distribution

as they play a vital role. He also believes that, while the big players may

come to dominate the market, advisers will look behind the glossy facade

and find specialist players to add value for their clients.

Other fund groups have backed Investec&#39s fears, claiming that a multi-tied

scenario would have serious implications for both the industry and


Schroders client services director Robin Stoakley says: “We are very wary

of the multi-tie approach to distribution and believe such a move could

provoke a scramble for distribution, replaying that of the tied agent

debacle in the 1980s when life offices just threw money at IFAs to

encourage them to tie.”

AITC director general Daniel Godfrey, also speaking at Sway, further

stoked the debate by claiming that multi-ties will lead to consumers being

ripped off and receiving poor quality advice through lack of competition.

He believes it is in investors&#39 best interests to have a competitive

investment sector with independent advice.

He told the conference: “Product manufacturers will attempt to woo IFAs to

multi-tie by offering incentives. This will lead to higher charges and poor

advice. It is clear independent advice remains the most important driver to

the investment market and any dumbing down of the rules governing

polarisation is likely to be to the private investor&#39s detriment.”

Owen says: “You have only have to look at the market at the moment. The

best performance is coming from smaller players such as Exeter. This is

very healthy for investors as these players are chipping away at the bigger

boys and making them think about what they are doing. Without this, the

sector would suffer.”


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