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Inside edge

The world is changing, like it or not. But there are some things that

will not change.

Independent advice will always be the best way for most people to

arrange solutions to their financial planning and investment needs.

The big question is how are independents going to persuade clients to

use their services rather than the “free” service of a multi-tied or

tied agent?

Having argued that polarisation should be retained on the basis that

the only form of advice worth getting is independent and that the

answer to the problems consumers face is not to scrap independent

advice but to improve it, we were surprised by the radical nature of

the FSA&#39s proposals. Our first reaction has been to look at the

proposals with an open mind. We were delighted to see the FSA asking

for comment on the issue of unbun-dling and we will respond

enthusiastically with the rider that this should apply irrespective

of the type of advice being taken.

However, there are some problems. First, how will things work for

advisers who choose to call themselves independent? They will have to

agree overall charges with their clients up front, yet it appears

that they can still take commission, rebating any excess to the

client or billing them for any shortfall.

It will not be beyond the wit of man to ask for a client agreement

that is likely to equate to expected commission and so, one might

ask, what difference will this make? This will be a very valid

question unless we get unbundling, in which case, the client will be

able to make a rational comparison of the costs between getting and

not getting advice.

Supporters of the status quo argue that this will lead to cli-ents

getting the advice and then dealing direct. But there are two reasons

why this will not happen.

First, their client agreement will commit them to paying, whether

they buy or not. Second, most people are pretty honest. If this were

not the case, true advisers would have been destroyed by discount

brokers long ago.

Another area which provides difficulties is the never never status

into which those independent advisers who wish to carry on as they

are will fall. Presumably, they will call themselves financial

advisers and lose the right to describe themselves as independent.

However, it seems to me that if an adviser chooses to ignore the

blandishments of product providers to tie or multi-tie, it is not

unreasonable to describe them as independent. This is particularly so

if the cost of advice and the cost of commission is unbundled as this

would operate to weaken commission bias.

I also have concerns about the impact of multi-ties. Prod-uct

providers compete principally for distribution rather than to

persuade the end consumer to come to them direct. The purpose of all

that consumer advertising is as much to build brand recognition to

support tied agents and IFAs as it is to generate direct business.

The introduction of multi-ties will unleash a vicious round of

competition for the signature of the present IFA community. This is

inevitably going to lead to an increase in adviser remuneration and

thus an increase in costs – not a good result for consumers.

Independent advice is the best advice but it is going to have to

compete in a tougher environment than before. If IFAs can communicate

the advantages of independence, constantly improve their standards

and argue for the separation of the costs of product from the costs

of advice, I have no doubt that they can win in this brave new world.

Daniel Godfrey is director general of the AITC

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