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Mega-network weighs in for distribution fight

The dawning of a mega-network of 7,250 registered IFAs and 3,700 firms

after Misys swooped to buy rival DBS for £75m has sent shockwaves

through the financial sector.

Despite the takeover – from which DBS chairman Ken Davy stands to net

£6.6m – DBS says it will retain its autonomy within the Misys group

and keep the existing management in place at its Huddersfield headquarters.

But DBS&#39s Assureweb portal will be fully merged with Misys&#39 m-link and

Misys says the potential for technological development is one of the key

motivations for the deal.

Other networks, IFA firms and product providers are now weighing up what

it means for one organisation to have a membership forming about 25 per

cent of the IFA market and how this will strengthen its bargaining power.

With Misys&#39 main rival Bankhall, owned by software group Lynx, claiming to

have 22 per cent of the IFA market based on value, what concerns some in

the industry is that information technology companies now control almost 50

per cent of the market.

Rival IFA Tenet Group chief executive Simon Hudson says: “I think

providers may be concerned about the control of distribution going into the

hands of IT companies. If polarisation disappears, Misys could be doing

tight deals with a select number of providers and others will be ousted.”

National IFA Millfield chief executive Paul Tebbutt says: “The product

providers must be strong but Misys is clever and knows it cannot make the

providers do what they cannot afford.”

Some people are convinced Misys was motivated to buy DBS purely as a

distribution channel to gear up for what it sees at the inevitable ending

of polarisation. ProAct Legal partner Gareth Fatchett says: “It is clearly

a distribution-based deal in preparation for multi-ties.”

Chiefs at Misys and DBS will not rule out the possibility the deal could

lead to the creation of a significant multi-tie operation and both hint

they may offer members the option.

Misys insurance division chief executive Ivan Martin says: “Changing

polarisation is not a done deal but there is likely to be potential for

multiplechannels of distribution.”

Not surprisingly, product providers are unwilling to rock the boat and

commit to whether they think Misys will multi-tie.

One product provider representative, who did not want to be named, says:

“The market is in flux, including polarisation, and anyone who rules out

multi-ties is cutting off their nose to spite their face.”

Some people think smaller IFAs may be the ones to lose out as they will be

forced to join a network to have any chance to negotiate with providers.

National IFA RJ Temple head of communications Liz Walkington says: “It is

smaller IFAs who may feel added pressure to join a network. Misys could use

its bargaining power for good or bad. It will be good to have such a strong

IFA voice but not if it drives members in one direction. It may put more of

a squeeze on providers but it could have a positive influence on product

design.”

Smaller networks think the deal may be good for them as members will

dislike being a cog in a big machine.

Cardiff-based Interlink has around 200 RIs and its executive business

development manager Brian James says: “As far as medium-sized networks go,

it could be good news as members may not be happy with the increasing size

of their network and worry about risk of losing their own brand.”

Tebbutt says: “We have already been contacted by about four DBS members

interested in what we can offer.”

Another big hurdle for Misys to overcome is the issue of competition. Some

in the industry are questioning whether the deal may fall foul of the

Office of Fair Trading and Competition Commission.

Misys has made a submission to the OFT and is confident the deal will be

passed but the outcome may rest on how the OFT will define market share in

this case.

The OFT investigates any merger which gives the new organisation 25 per

cent or more market share. If it believes the deal will hinder competition,

it is referred to Trade and Industry Secretary Patricia Hewitt. She then

decides if it should be passed to the Competition Commission.

Misys says it has about 25 per cent of market share in terms of numbers of

IFAs but claims to have only 13 per cent of the value of the market based

on productivity and turnover. Davy says: “By the crudest measure of market

share – IFA numbers – we will have between about 25 and 27 per cent. In

terms of value – probably a more accurate measure – we will have about 16

per cent of the IFA market and about 10 per cent or less of the market as a

whole.”

Davy argues one of the real benefits of the deal is how it will accelerate

the development of the electronic portal, which the OFT should see as good

for the market and consumers.

A competition lawyer with a leading City law firm says: “Market share is

one of the key tests used by the OFT and, if it thinks a company will have

a huge market share which may have an adverse effect on the consumer, it

may refer it to the Competition Commission. It normally measures market

share by value and volume in that order.”

The last word should go to the people who will be affected most by the

deal – DBS members. Halton Insurance Service director Mike Fry says: “From

my past experience, Misys is not good and I do not personally trust the DBS

board who will make a packet from the deal. It will be interesting to see

who stays on the board. They may find a few disillusioned members go

elsewhere.”

Now Misys has grown from super-network to mega-network, only time will

tell whether product providers, IFAs and clients will win or lose from the

organisation&#39s ever increasing power.

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