I was recently asked by an IFA who specialises in the mortgage market, and who works for a large independent practitioner, the following question: What status is J Rothschild Assurance? When I asked what they meant, I discovered that they wanted to know whether a representative of J Rothschild Assurance (a friend of theirs) was an independent adviser or not.
I explained that J Rothschild Assurance was an insurance company and that its representatives were tied to that company and not independent. I probed further. Why did they ask this question? The response was stunning. “Well, my friend said that they are 'sort of independent' and could we introduce corporate business to him.”
It appears we have a new status in the financial services profession – “sort of independent”. The reason I tell this story is that I imagine most readers will be as amused and simultaneously shocked as I was to hear such an expression.
Well, get over your shock because the status sort of independent is likely to become legal in the financial services world. It is just that it will not be called sort of independent, it will come with the more familiar name of multi-tied.
The myth of sort of independent is that it implies a state somewhere between truly independent and tied. It implies elements of both, for example, some market choice but not all. The reality of multi-ties is that it drags the financial services world kicking and screaming back to a time prior to April 1988 and the advent of the Financial Services Act.
It also fundamentally des-troys the concept of polarisation and does an incredible dis-service to the consumer. It undermines exactly what many of us have worked so hard for over the years. While I accept that, even today, not all consumers understand the difference bet-ween independent and tied advice, we were, in my view, reaching a point where polarisation was starting to work.
What are the advantages to the consumer of a multi-tied approach to product provision? I am not sure that I can think of any substantial benefits. I can think of a number for product providers and a few for some intermediaries but it is the consumer who will be disadvantaged.
So, expect multi-ties to happen because, despite what the Government might say, it really does not have the consumers' best interests in mind with this one. Sadly, after such a long period of time trying to educate the consumer to the advantages of independent advice, it looks as if the journey is taking us back to square one. More education is what is needed, not more changes to the rules.
Some might claim that the multi-tied adviser already exists and they will offer up as an example the use by IFA firms of panels. This misses the point. A panel is simply the output of a lot of product research, the sifting out of inferior products and the establishment of a core of products and prov-iders who satisfy key criteria.
Panels are, in fact, a demonstration of independent advice. Some ill-informed commentators believe that the panel is made up of providers who pay the highest commission. In my experience, this is rarely the case.
The really worrying thing is that those who have been the beneficiaries of the IFA sector for the past 10 years, the product providers, are rubbing their hands and licking their lips in glee. Yes, of course, they will protest when they talk to you. We want a strong and vibrant IFA sector and yes, of course, we are absolute supporters of independent advice.
Yet, behind the scenes, these very same product prov-iders are already planning that day when they believe they will start to take back some control of the distribution channels.
The one thing they have detested over the years has been the fickle nature of the IFA, the way we have moved on to other providers when service standards have slipped or when more competitive products have come along.
Not only are product prov-iders planning for multities, they have already started their marketing. They are out their, trust me, talking to the bigger IFA players setting the scene for the deals to be done (remember the soft loans prior to the Financial Services Act?).
In the same way that the number of providers has consolidated over the last few years with fewer and fewer but bigger players, a similar consolidation will take place in the IFA sector. Indeed, if you truly intend to remain independent, expect to be one of a relatively rare breed and probably operating inside quite tight constraints. For example, I can envisage a time when you will only be independent if you operate on a fee basis. Commission will be for multi-tied agents only.
The only alternative to independent status will be the multi-tie because frankly the tied agent/direct sales distribution channel will be extinct. It is already well on the way. So, the future choice for the adviser looks quite interesting. Independent or sort of independent, which will you be?
Nick Bamford is managing director of Informed Choice