In its latest small firms newsletter, the regulator says any IFA considering a consolidator to exit the market must identify, manage and mitigate potential conflicts of interest brought about by an unregulated consolidator’s business model, including transparency over any inducements to advisers to recommend particular products or platforms.
But Succession Advisory Services chief executive Simon Chamberlain says conflict of interest will only arise if IFAs are getting paid extra money from a platform to move money onto their service.
He adds: “What the FSA is getting at here is they don’t want to see a mass transfer of funds just for the sake of it. What they want is for each client to be treated individually, and for those clients assets to be assessed to see if they are moveable.”
The newsletter also says any IFA considering the consolidator route must demonstrate that they are continuing to treat customers fairly, explain any additional costs and ensure that added value to the IFA for using a consolidator “should not be to the disadvantage of the customer”.
Chamberlain says: “If any business has been around for more than five years it is going to have a lot of clients in old-style products and now you can buy those exact same funds with exact same tax structure from a platform for a tenth of their price. So any adviser out there who knows he has got a client in old-style products and knows that those products can be moved onto a platform saving the client a lot of money but doesn’t do it then he is in breach of treating customers fairly.”
Financial Inspirations chief executive Garry Heath says the regulator’s statement is not a problem for his firm, but says it is sensible advice from the FSA.
He adds: “There is absolutely no value in a consolidator disrupting the relationship with the adviser and his clients because that is the value the consolidator is buying.”
Perspective Financial Group managing director Damian Keeling says it “wholly” agrees with the FSA’s sentiments, and describes today’s news as a potential shot across the bows of some consolidator business models in the marketplace.
He says: “A business model that depends on aggregating purchased firms assets onto the consolidators own platform may well create conflicts of interest to potential consumer detriment. The consolidator market is made up of a number of different business models, and clearly some are preferable to others in the regulator’s mind.”
Transact head of marketing Malcolm Murray says the wrap is delighted with the FSA’s actions. He says: “We’ve been going on for two years about the importance of suitability tests on every single client before putting them on any platform. I think what the FSA is saying that advisers better be aware of that and the fact they used the words unregulated consolidator leads me to think they have spotted a trend, maybe they are seeing that people are not paying much attention.”
Chamberlain says his firm is in the process of being regulated, while Heath says: “Most consolidators will have unregulated holding companies but all their holdings will be regulated. So all actions will be regulated.”
Threesixty partner Phil Young says the FSA runs the risk of tarring every IFA consolidator with the same brush unless it specifically targets unregulated firms.
He says: “I do share the FSA’s concerns about some propositions which I have seen, typically from non-regulated firms, which have fairly crass objectives. but what is really frustrating is that people will pick up on the words consolidator and wraps and tar everyone with the same brush. There are plenty of high quality IFAs out there buying up other businesses and using a platform to facilitate this. The critical point, which the FSA make, is that this is part of an advice process, so that each clients needs and requirements are met when considering whether the platform is suitable or not.”
Going forward, Young says: “It will be interesting to see which wraps turn a blind eye and facilitate this, and which of them can afford to turn the business away. Are the Platforms mature enough to self-regulate this?”