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Deal reopens debate about driving under the influence

Skandia&#39s move to acquire Bankhall parent Lynx Group has surprised a market accustomed to its biggest players jostling to secure distribution.

Its £210m bid has caught its competitors off guard and reignited the debate over whether ownership of IFAs by product providers will lead the public to question the impartiality of the advice they receive.

Clerical Medical head of strategic marketing David Shelton says: “The deal pulls into focus the integrity of advice given by an IFA owned by one provider. I think people may well have an issue with this.”

It is not only rival companies which have expressed concern. Some Bankhall members – many of whom wish to remain anonymous – are predicting an exodus if Skandia&#39s influence is felt too keenly.

Bankhall member and McMullen director Chris McMullen says: “If Skandia has bought Bankhall as a corporate trading body, then I think that is fine. Somebody or something always owns shares and bankrolls trading. But I – and the market – may change this view if Skandia starts putting its fingers in too many pies. If product bias starts creeping in, then there will not be too many members left hanging around.”

Perhaps aware of this danger, Skandia has moved to reassure members by trumpeting the bid as positive step aimed at helping to develop support services for IFAs. Press officer Jo Gilbey says: “Bankhall members will be as independent today as they were before the deal. There will be no interference from us at all. We hope they see this as a way to support growth of the sector.”

Skandia has been keen to quash suggestions that the deal was inspired by the threat to polarisation, rating it fourth in order of importance behind providing support for IFAs, developing structures and exploiting opportunities for growth.

Skandia says it is not trying to second-guess the FSA&#39s decision on polarisation and will only concede to wanting to be well placed in the event of a change.

Despite its protests to the contrary, there are some IFAs who doubt the sincerity of Skandia&#39s explanation. Informed Choice managing director Nick Bamford says: “I am not sure what Skandia is saying adds up. Does this deal really help and improve the IFA sector? If this is a step towards controlling a distribution channel, then Skandia is actually saying that multi-ties are going to happen, which I am less than certain about. It could end up being a bad judgement call on Skandia&#39s part.”

Whatever the future for polarisation, Skandia&#39s proposed 86 per cent stake in Bankhall is not only causing consternation for some of Bankhall&#39s members. Norwich Union, which continued its policy of buying stakes in IFA firms last month by taking a 4.7 per cent share in Inter-Alliance, says it was taken aback by Skandia&#39s move and admits to being concerned about its relationship with Bankhall following the deal.

Director of IFA development David Barral says: “We are surprised. It is not part of our strategy to fully own IFAs, we only want to invest in them. NU is the major provider to Bankhall members and we want that to continue. We hope they continue to value our support.”

Clerical Medical says it fears the logical conclusion of this type of acquisition could be against the public interest. Shelton says: “If this trend were to continue, the industry would end up with a very small number of providers owning most of the distribution. We much prefer to have a small stake in conjunction with a number of other providers. The regulator should be keeping an eye on this.”

In a move which may go some way to allaying industry concerns, the FSA has confirmed it will be invoking its better-than-best rule in the Skandia/Bankhall deal. But Skandia says it is unconcerned about this measure as it should only impact on the 15 per cent of the Bankhall membership who are registered individuals, something that clearly proved to be a selling point for Bankhall.

Gilbey says: “I do not know whether we would have gone ahead with this deal if there had been more Bankhall members coming under the rule. The FSA, which we worked with very closely on this deal, probably would have been a lot more concerned about it if they had.”

An FSA spokeswoman says: “IFAs are looking for financial input and, under the better-than-best rules, there should not be a conflict of interest. Polarisation will have an impact on what happens in the future, as will the Sandler review and the 1 per cent world. Our main concern is that the industry remains competitive and innovative.”

The FSA is due to issue a consultation on polarisation next week which should give a much clearer indication of whether the industry should be preparing for multi-ties.

Despite Skandia&#39s denials that the threat of a depolarised market bore much influence over its decision to snap up Bankhall almost in its entirety, the product provider perhaps gives away its true motivation when says it is prepared to do “whatever it takes” to secure its future.

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