More than 10 years ago, the market started to consolidate in the independent sector when networks and big IFA firms started to emerge.
Independent sole traders and small partnerships happy trading on their own saw the networks as a way of benefiting from the economies of scale so they were happy to join without losing their identity.
Networks continued to exp-and as the tied sector shrank. The providers were the primary supporters of those new companies as they paid higher commission rates for volume business.
Admittedly, it enabled them to present to groups of IFAs organised by the networks but I doubt whether the higher rates were validated as most IFAs continued to place their business wherever they wanted. However, this did create a clear distortion in the market, which these big firms exploited.
The regulatory regime was the other reason why IFAs chose to join, on the basis that the network looked after all the compliance issues while the IFA got on with selling. Fiction or truth?
It is hard to know, except now it is not possible to become a sole trader from the tied sector or outside the industry without joining someone first.
Having supported this push for consolidation, the providers must have become quite alar-med as they watched a super-network emerge, as a supernetwork could put an even bigger squeeze on their margins.
How lucky, then, that a review of polarisation is under way because this might be an opportunity to level the playing field and bring control of distribution back where they used to have it.
We should all be aware that providers need our distribution because they do not have much of their own. It is not just the cost of running a direct salesforce that made them give up doing it but also because their tied agents were continually defecting to the independent sector.
The reason for this defection was consumer awareness. The consumer started to real-ise the difference between tied and independent advice, which logically made it more difficult for the tied adviser to sell expensive products to the public.
So, you might argue, now that we have a robust independent sector, why would the providers want to blur the distinction between tied and independent advice? The answer is cost because they cannot compete with each other at the current commission levels in a 1 per cent world. While the independent sector is out there, it is difficult to build a direct salesforce so, rather then continue to fight this price war, why not try and weaken our position so that is possible to rebuild multi-distribution?
From the regulator's point of view, I suspect the take on it is different. They know the providers have the cash yet we have the distribution so why not try and put the two together? It is far easier to regulate a few life companies than thousands of sole traders. Within a network, it is also easier to seek compensation from a company that has cash.
I believe that we have only just started the consolidation process. The first phase, which took 10 years to evolve, was the building of networks and big IFAs. The second phase, which has already started, is the purchase of networks and big IFAs. The third and subsequent phases will see further consolidation by the big players and the timing and extent to which this happens is heavily dependent on the outcome of the polarisation debate.
I am not sure what this will mean for IFAs but I know that providers do not know how to manufacture anything other than financial services products so, provided that we maintain our affinity with clients and we learn to adapt, we remain in a very strong position and will survive no matter what.
Steve Kelland is chief executive at Burns-Anderson Network