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.”