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's 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's 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
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's 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' 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's 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.”