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MM leader: Why don’t consolidators answer the charges against them?

Natalie Holt, journalist with Money Marketing Photo by Michael Walter/Troika

Announcements proclaiming the latest advice firm to be snapped up by a consolidator are standard fare these days, and have been for the last couple of years. The press releases trumpet how the latest sign-up is a ringing endorsement of the consolidator’s business model, yet often fail to disclose some of the most basic details about the acquisition, such as how many active clients there are, how many advisers, and what was paid.

One of the things that is never talked about is what happens to the client once the deal is done. Will they move platform? Be encouraged to use the services of a particular discretionary fund manager, or be automatically switched into a certain investment range?

It is those questions to which the FCA is now looking for answers. The regulator has asked the consolidators to clue it into their growth plans, but more importantly, has also asked for their approach to suitability when dealing with acquired clients.

In other words, for every client that is moved, is a robust review being carried out into whether this switch is in the client’s best interests? Or are clients being shovelled into investment ranges for no other reason than to hit an agreed target on assets under management (though perhaps the FCA is not asking this quite so bluntly. Maybe it should)?

In trying to understand more about how this market works, Money Marketing asked consolidators to talk through concerns about a lack of client care when it comes to moving clients onto certain platforms or centralised investment propositions. It is disappointing the lack of transparency apparent on the press releases has come through loud and clear in responding to our requests. All but one of the consolidators approached declined to comment. I

t is predictable but understandable that firms do not wish to discuss ongoing FCA activity. What is inexcusable is the point blank refusal to discuss the model at a high level and defend what are serious allegations of ripping off clients by pushing them into unsuitable investments.

One question it is not clear whether the FCA is asking is on taking their review beyond the consolidators. Many firms have a taste for buying advice firms – fund groups, providers, wealth managers, you name it.

At the end of the day, we are not talking about just assets changing hands, but clients. If the FCA finds evidence of wrongdoing, it will need to act quickly and decisively to safeguard the acquired clients of the future.

Natalie Holt is editor of Money Marketing – follow her on Twitter here

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. The simple answer is because they can’t. If they did they would condemn themselves. When an IFA sells (usually for reasons of retirement), the clients have then to get used to a new adviser; to be able to trust and have confidence in them. This isn’t an overnight thing.

    Consolidators are usually just interested in scale and gobbling up as many clients and assets as possible. That’s why they are in business. In spite of all the marketing rhetoric, too often clients interests don’t come first. You will find that many consolidators work on the model of: adviser, client relationship manager and paraplanner – all contributing to their substantially higher costs. The poor old client who has dealt with is trusty IFA for years doesn’t know which way to turn and after five minutes all the personnel they have been dealing with change. Hardly a client centric proposition.

    Fees are the prime consideration and clients interests are only considered in so far as they ‘stick’. They are shoved into model or outsourced portfolios to ensure that the consolidator can control risk and be in a position to combat what may turn out to be – inevitable complaints.

    I think it is all to the good that a light is now being shined under this rather murky rock.

  2. “Regulators are happier dealing with large firms because large firms are just like regulators – bureaucracies in which career advancement and enrichment do not necessarily result from delivering any benefit to the consumer. The client knows that small is beautiful. The regulator prefers large even if it’s ugly – and in the advice sector, large has almost always been somewhere between ugly and loathsome.”
    (From one of my MM columns earlier this year).
    Expect the FCA review to result in a few mildly wrapped knuckles, but don’t worry, consolidators, the AIM flotation and exercise of all those share options is still on!

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