What price is independence under the new regime and what does it mean to be independent? CP121 throws up more questions than it answers.
It is certainly not a consultation document but rather the shape of things to come. While we may question its rationale and be amazed that independent financial advice was not better understood, this face-on collision will only make enemies of those that could be friends as we fight the battle of the details.
There has been criticism that this view is throwing in the towel but readers of this column know I am a staunch defender of the status quo. However, it is rather like looking at a tidal wave engulfing a small island. One may not, as an inhabitant, want this to happen but nothing is going to stop the tidal wave.
If we start from this point of view, then we can work on the important points of detail.
This thinking is skewed. You can be an IFA provided you charge fees. However, you could be 100 per cent-owned by a life company or selection of life companies and still call yourself independent. How is a consumer to feel happy when you recommend a contract by a particular life company that owns the independent business?
Will there not be questions raised as to the true independence of the adviser? Is this not going to create a bias, at least in perception that is as great as any commission bias? Crucially, will ownership be disclosed?
To my mind, the ability of life companies to hold stakes in IFA businesses is a sop to the independent sector. Cleverly, the FSA recognises that many IFA firms are undercapitalised and from an investment protection point of view, one can see that this would cause some concern. So, they sweeten the bitter pill.
For our own business, ownership by life companies is not our favoured route but assistance from product providers to help us with our expansion plans would be welcome.
The powerbase shifts with CP121. IFAs have had quite a field day. We have been in a powerful position disproportionate to our size. It is sad to reflect that some of this power has not always been wielded wisely.
Now the product providers will certainly have more muscle both in terms of the investments they make in IFAs and in terms of the different distribution arms. IFAs are favoured at the moment as we are cheap and the quality of our business is better.
However, if another sector of the post-polarisation world emerges with equal quality and cost-effectiveness and perhaps a little less trouble, I wonder how soon IFAs would remain the favoured channel.
So, IFAs need to be looking very carefully at their business proposition. Does it stack up in a depolarised world? What shape is your business going to be in? Do you need to make some changes and adapt? The winners will be those who are fleet of foot and adaptable. The inflexible are likely to break under the strain.
So, are you working for the right sort of organisation and what are their plans for the future and do they tie in with yours? Do you and your colleagues agree over the strategy for the firm and how prepared are you to stay independent?
Essential to making CP121 work for IFAs is to make sure that the remuneration part is simple and does not add layers of additional unwieldy costs or bureaucracy.
The simpler it is, the more people are likely to remain independent. There is a price to everyone's independence and one cannot take it as sacrosanct. If your business income was to halve, could you really stay independent.
So, these sort of details are essential, as is the retention of the ability to draw the fees from the product itself. What needs to be clear is the agreement you have with the client.
IFAs need to consider their response to CP121 very carefully. If you think about it in constructive terms and take it as an opportunity to influence the market, you might be quite surprised at what comes out the other end.
Certainly, Aifa is doing good work in this area and any IFA who is not an Aifa member is sailing a walnut-shell boat on very stormy seas.
Amanda Davidson is a director at Holden Meehan