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Leading by example

It may sound like stating the obvious to point out that when the chips are down, most institutions, and in particular those with strong links to banking, will happily bite the hand that has previously fed their bottom line.

There are various rumours going around that major lenders and banks are shortly to substantially cut or even remove procuration fees, something they have prob-ably waited patiently to do for a number of years. This will clearly have a profound effect on most mortgage brokers, who are already reeling from the substantial reduction in lenders and credit generally. But just in case that is not sufficient to undermine the consumers’ use of the broker, it now appears that some lenders are offering a better rate if the customer applies direct.

We should not be surprised as the banking sector and, I guess for the purposes of this article, most building societies have very shortterm profit targets which would not be influenced by the potential of longer-term detriment when times change. Caught in the middle of this as usual will be the consumer, who in this newly regulated world of mortgage advice may well be deprived of that personalised advice process, having instead to take whatever mortgage they can get their hands on – effectively back to execution-only and big margins for lenders.

Meanwhile, in the world of life, pensions and investments, distribution is more and more inclined to look towards developing products that their customers need and that are not dependent on institutional providers.

Like lenders, the life and pension industry has been trying for some time to reduce costs and in particular distribution costs and find ways of dealing directly with the client, cutting out the middle man. Well, distribution groups are proving to be only too pleased to help, only they are cutting out a different middle man – the provider. Distribution groups, unconstrained by the traditional thinking of some product manufacturers, are in a unique position to develop customer-focused investment propositions which are designed to reduce admin time and provide flexible pricing and remuneration options.

A number of bigger IFA groups plan to launch their own fund-based propositions. We have been able to utilise our inherent understanding of IFA distribution to develop an investment proposition that is designed to support the IFA/client relationship throughout the lifetime of the investment and react in a positive way to recent FSA initiatives such as TCF and the RDR. Our new investment company, Sinfonia Asset Management, aims to change the traditional value chain to the benefit of clients by providing greater service support for the IFA and to reward the IFA more appropriately for the work that they do, with the ability to share in embedded value.

It will also utilise our established relationships with traditional providers to create new ways of working together such as agreeing access to funds through a number of platforms and wraps. Attractive as this idea is, this route will not be available to the majority of IFAs. Large amounts of investment and money under management as well as access to serious expertise is required to make this type of proposition a viable one.

However, when these criteria can be met, these new generation of adviser-led propositions are likely to make some waves and if the old adage of once bitten, twice shy rings true, some of the big institutions may live to regret their short-sighted attitude with regard to the adviser population.

Simon Hudson is chief executive of Tenet Group

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