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FSA sends out warning on IFA consolidation vehicles

The FSA has written to all small firms warning that if they are joining an IFA consolidation vehicle as a means of exiting the market they ensure the new solution is suitable for all clients.

In its latest small firms newsletter, the regulator says any IFA considering consolidation to exit the market must manage potential conflicts of interest brought about by a consolidator’s business model, particularly when looking at wrap.

The newsletter says: “Typically the consolidator firm will put the adviser firm’s customers onto a wrap platform for ongoing servicing and the client bank at a later date. This appears to be a growing trend in the financial adviser market in particular. A number of these consolidators are not regulated firms, so they aren’t regulated or supervised by the FSA. We would like to remind firms they must continue to act, honestly, fairly and professionally in line with the client’s best interests.”

The FSA says if an IFA is considering the consolidator route they must have appropriate systems and controls in place to identify and mitigate the risks arising from conflict of interest. This includes transparency over any inducements to advisers to recommend particular products.

Firms must also demonstrate that they are continuing to treat customers fairly, and any additional costs to the customer need to be suitable for their individual needs and circumstances.

The newsletter says: “It is not enough to disclose these and agree them with the clients before the transfer.”

It continues: “Many consolidators claim their business models will save adviser time, maximise revenue streams from client investments and allow firms to concentrate their efforts on financial planning rather than fund selection. This added value to the IFA should not be to the disadvantage of the customer.”

Finance and Technology Research Centre director Ian McKenna says: “This has major implications. It is another nail in the coffin of the argument that you can have a single wrap platform.”


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There are 23 comments at the moment, we would love to hear your opinion too.

  1. The FSA/Stasi is putting the jack boot in even as the IFA tries to exit with some dignity!

  2. Further proof that the FSA is way past its sell-by date. Roll on a Tory election win.

  3. When are the FSA going to get their head round the fact that the market has already moved on. Independendce is now primarily at fund level not provider / product level.

  4. And just what makes you think a tory government will be any different? These people are civil servants they are about as easy to move on as a mountain is.
    I wonder how they regulate someone who has just had enough and closed up shop…Is that any better?
    Troubled times that are going to be more troubled for a time.
    Question for the fsa: Why are we posting anonymously?

  5. I hope this also applies to the likes of Resolution.

  6. Can’t they think of anything else to get the poor old IFA?

    Since the FSA has realised that the IFA is probably the only source of creditable, honest, caring independent advice, things have been very quiet on the ‘Get the IFA’ front.

    Well obviously there has been a gofor beavering away in the cellars of HQ, under strict orders, trying to find something – well, here it is.

    Incidentally, has no-one registered the fact that all this recent buzz about poor mortgage advice has probably had NOTHING to do with IFAs simply because, before any mortgage recommendation comes from an IFA, the clients usually have had a means (affordability) test completed – as standard practice when completing the fact find. Again, very quiet on the ‘Praise the IFA’ front also.

    And another thing – who exectly is representing IFAs these days?? Whoever you are, you are very quiet.

  7. The Greeks, they say, had a word for it. The Romans had an expression: ‘The rigour of the law is the height of oppression’. Rigour of course means stiffness, as in rigo(u)r mortis. Hey-ho for the last rites.

  8. Neil F Liversidge 20th October 2009 at 12:45 pm

    We certainly cannot count on anything being different under a Tory overnment dominated by the Victor Meldrew tendency who, according to the FOS themselves, make up the majority of complainants. The message from the FSA is loud and clear – “Whatever you do we will find fault with it, because that way we keep our soft jobs and fat pay packets, and that way we can justify employing more subordinates to insulate us further from reality.”

  9. You undermine the justifiable criticism of the FSA (and theres lots!!) by disagreeing with EVERYTHING they say. I dont see what could be controversial about this story above – it effectively says that actions you take must be in your clients interests and you should disclose when theyre not. How could anyone argue with that?? Some of these “consolidator” propositions have looked pointless and counter productive when considered from the clients perspective, especially when there are other ways of achieving the same end result without disadvantaging the client

  10. Like the rest of you I’ve simply had enough. The FSA are simply a bunch of nit picking bueacrats with little or no understanding of the industry that they regulate.
    Although the prospective Tory Govt. will hand over the powers of the FSA to the Bank of England, the FSA themselves (according to a good friend of mine that works there) simply expect to change their name to the Consumer something or other and carry on blighting our lives in the same way that they do now!
    Haven’t heard much from AIFA recently – hope John Gummer is paying attention as this is his one and only chance to be able to make a relevant difference for the industry he represents.

  11. Neil F Liversidge 20th October 2009 at 1:21 pm

    A few points of fact:
    1. I do not disagree with everything the FSA say and if you care to check you will find that I went on record recently supporting ‘decency checks’.
    2. You will never find any ‘civil service’ or QUANGO type entity that ever voluntarily reduces its remit or staff even though they probably all could and should. All they ever do, all of them, is expand to consume the wealth generated by others. The FSA is a great example of this and the European Commission and its ad-ons is probably the prime example.
    3. I do not post anonymously.

  12. stop havinga go at the FSA thy are trying to look after the ifa community and the public at large…

    yours anonymously somwhere in canary wharf

  13. I don’t think there is any other job that is so difficult to leave. You may be stressed, depressed, fed up, want a change in life or simply retire at the end of your working life but you can’t. Where does it say that you take on a client for life, be it theirs or yours. Its unfortunate, but if nobody else can provide the service that you did for the fees that you charged surely you can’t be held responcible to your dying day which appears to be what is being said.

    The application for FSA registration should clearly point out that it involves selling one’s soul for all eternity.

  14. You must be joking 20th October 2009 at 2:40 pm

    Having seen the FSA’s questionnaire on platforms, I quite honestly say “they just don’t get it”!

    They, unfortunately, keep harping on about “outcomes”, “suitablility” and “circumstances”.

    At the end of the day, most clients seek advice because they want to imporve their wealth and save for the future, hopefully improving on deposit rates.

    Without the benefit of a crystal ball, no IFA (or regulator) can say with any certainty what will happen over the next 20 hours never mind the next 20 years, so we’d all be best getting our order in at as soon as possible.

    All joking aside, I CANNOT see how a platform is NOT a suitable solution for any client. As long as they are aware of the cost implications, and what they will be getting for those costs, i.e. the service then that is a matter for client and IFA.

    Ask any client ” would you prefer me to put you in a contract/fund that charges 1% per annum and leave it there for the next 5, 10, 15 years OR would you prefer a contract/fund that costs 2% per annum – yes TWICE as much – but for that you’ll get a quarterly report, quarterly rebalancing and advice as to any recommended fund changes?” and I can GUARANTEE that the client would chose the latter option even though they are fully aware that neither the IFA not the regulator knows which will produce the better outcome.

    Clients want ongoing advice and to be kept informed of progress and will pay for that, irrespective of their level of wealth.

    And as far as the comment “It is not enough to disclose these (costs) and agree them with the clients before the transfer” goes, did I miss something? Has RDR and customer agreed remuneration been knocked on the head whilst I was ordering my crystal ball?

    Come on FSA, you either want customers and IFAs to agree what will be provided and at what cost, in which case it is outside your remit to comment or you don’t… it’s make your mind up time!

    PLEASE NOTE – the word GUARANTEED has no real meaning and should not be taken as a guarantee that any implied event will occur or not occur. GUARANTEED shall be determined by the
    users ability to honour that guarantee at any future date which may or may not be possible….

  15. Why doesn’t the FSA do something worthwhile ?
    Fed up with the FSA just getting the easy targets, whilst allowing a company trade on the AIM as a fraud (£365 million) just by saying they have £365 million funds when they didn’t the fraudsters are still at large the FSA have turned a blind eye and done diddly squat
    Regulation FSA you can stick it, I,ve had enough and will just close up shop with no Pi to renew and let the FSA deal with that

  16. I don’t think there is any other job that is so difficult to leave. You may be stressed, depressed, fed up, want a change in life or simply retire at the end of your working life but you can’t. Where does it say that you take on a client for life, be it theirs or yours. Its unfortunate, but if nobody else can provide the service that you did for the fees that you charged surely you can’t be held responcible to your dying day which appears to be what is being said.

    The application for FSA registration should clearly point out that it involves selling one’s soul for all eternity.

  17. Shouldnt regulators be individually accountable financially for life for any errors they make as well?..jsut to be fair?

  18. I heard recently that ‘BIG’ companies such as Tesco and Asda for example, those consumer outlets that have massive consumer exposure, bulk buying power and of course huge profits, are looking to agree a deal with the big Life Assurance companies to sell assurance etc. off the shelf – Not a leaflet as before but an actual package!!??? and all of this is supposed to be ok with the FSA?!

    They give us IFAs such a hard time compliance wise – how is this ok?

  19. The most telling point is the numbers of posters who do so from the safety of anonymity.

    This confirms that many are living in fear of retribution – what a state for a consumer oriented market t be in.

    Have we got the regulator we deserve?

  20. I rarely post annon as whilst I do think the FSA may be a bit too fond of the jackboots, i do like them to be prepared for the reaction they may get for any over-reaction and ovr use f the jackboot. Ironically on this occassion, I see the point of their comments in this article. I’ts not saying “don’t consolidate”, it’s saying think carefully about whose interests it is in and make sure you can demonstrate it. We tok the unusual decision to record all client phone calls and meetings as it demonstrates the process and discussion we go thru when discusssing ANY kind of consolidation. For instance I have just discussed the advantages and disadvantages with a client of transferring an individual stakeholder, and a paid up GPP to the GPP we administer for his new employer (which is single charged and mirrors stakeholder pretty much). There is little to choose between them and ultimately therefore it comes down to convenience and how he can pay for advice now and in the future. From the recordings, we can demonstrate lack of bias, client preference and cations taken. We can also demonstrate the discussion I had with him about his deferred Final Salary Scheme and the optiosn for advice from two differrent G60 qualified firms so that no accusation can be made of not advising that he took advice. Personally I think recording of meetings is the way forward as it demonstrates intent much better and the FSA have accepted the use of our recordings as part of the suitability report, now what we are waiting for is a complaint where we can use it to clarify matters (note I do not say “defend” as the evidence of the recording may show we were wrong). We currently have our first potential compliant for 11 years and this so happens to be since we staretd recordings and having checked the recordings, we are happy we acted properly and are waiting to see if the clients solicitor wants to listen to our recordings/evidence before deciding whetehr to waste the time of the FOS. If he refuses to, we will tell the FOS it is vexatious and that the solicitor should first listen to the recording ratehr than waste the time of the FOS.

  21. Come on people get a grip. There’s a lot merit in what the FSA are saying.

    They recognise – and have said so in writing – that wrap (if used correctly) can be the key in helping firms transition to the post-RDR world. But they are (quite rightly) worried that wholesale transfers onto wraps could be the next big mis-selling mess they have to sort out – which in turn could ruin it for everybody.

    This should be a worry for all of us using wraps correctly and planning to be still around post-January 2013 (where as IFAs or restricted advisers).

    Well done the FSA for flagging this up now whilst it’s not too late. Let’s hope they lean heavily on the relevant consolidators (we all know who they are, where they’ve come from and what they are up to now).

  22. I think it is important to recognise that there are several “consoldiator” vehicles out there many with different service propositions. I support wholly the FSA comments in this newsletter and whilst we do not try to focus our supposed peer-group, it is clearly worrying when there is a danger of being tarred with their brush.

    Consolidation has been tried on several occassions and more often than not it has failed because the peopel running them have focused on the wrong areas i.e. headcount and turnover.

    We focus on profitability and management. the firms we have acquired all run successful practices and actually want to develop their business but with the surety of capital backing. They continue to run autonomously as their own practices and we simply help with the more mundance side of life i.e. compliance, financials and marketing!

    If our acquistions want to expand (as several do) we provide the finance and more importance the M&A expertise so that they do not have to take time out of the business on legals, due diligence.

    We also fully support our acqusitions in training and development with our first firm achieving Chartered status and two more due over next couple of months.

    Simply buying GOOD businesses and asking them to do things differently is asking for trouble. It is obvious that there will be consolidation in the marketplace, but it is essential that it is done in a sustainable and long-term view.

    If there was an area I would like the FSA to focus on it would be the apparently acceptable practice of asset deals. This is bad value for vendor and client and something we strongly resist – if the business is worth buying you buy the whole things (it is also tax negative for the vendor).

    Several of the PR heavy consolidators are still fund-raising so sometimes that pinch of salt can be more like a bag!

    This isn’t a pitch I promise – I just want to make sure that we all recognise that there are different ways out there.

  23. So people are saying that wraps are only rhere for the benefit of clients? Nothing to do with higher fund-based commission, soft payments from Investment Houses, etc? When you recall that some wraps will not allow you to transfer out except to another wrap, how does that help a free market or look like anything other than a Restraint of Trade?

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