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Multi purpose

As part of a radical shift in FSA thinking, multi-ties could be stripped of their right to be called advisers to create a clear separation between whole-of-market advice and sales.

The FSA says it may force multi-ties to convert to a non-advised sales service if they do not want to become whole of market or potentially create a new “simple products” regulatory sales regime to supervise the channel.

The regulator considers that this prohibitive option may be easiest for consumers to understand.

Other options floated include forcing multi-ties to operate under a label such as “sales with persuasion” or allowing them to carry on using the adviser label, which the FSA warns would compromise simplicity and have implications for the rest of the advice channel.

St James’s Place, which operates a model that would fall outside advice, is furious with the report.

Chairman Mike Wilson says: “I do not think for a moment that this will see the light of day. It is incredible to suggest that our advisers are just salespeople and that anyone who sells products from the wider market is giving advice.”

Wilson says the firm’s 19 external fund manager links give it broader access to investment products than many IFA firms and says the thought of SJP offering simple products would make no sense for its client bank.

He says: “This is very early days and I think a lot will change after much consultation, to which we would like to contribute. We are all for raising standards in the industry so we welcome that but we have definite concerns over the understanding of what constitutes advice or sales.

“We offer advice on inheritance tax and pensions to high-net-worth individuals – these are sophisticated products, not simple ones. I do not think for a moment that this will see the light of day – it is incredible to suggest that our advisers are just sales-people and that anyone who sells products from the wider market is giving advice.”

But Sesame, which runs both independent and multi-tied channels, has praised the report and urges the FSA to develop the ideas.

Executive chairman Ivan Martin says the split would deliver greater clarity for consumers. He says: “We are encouraged by the FSA’s emerging themes as a progressive and positive outcome for consumers and we urge the regulator to maintain its course in the face of a likely onslaught from other parties such as the banking sector.

“Sesame’s position is simple – you gain financial planning advice from independent professional advisers, you are sold prod-ucts and receive information from salespeople.”

Axa, owners of Thinc Group, which operates independent, multi-tie and tied distribution partnerships, says competence and skills should be seen as more important than whole-of-market advice.

Head of pensions and savings policy Steve Folkard says if the split between sales and advice goes ahead, it will limit the number of people that have access to advice.

Folkard says it is more sensible to operate a number of distribution channels, with the focus being on the quality of advice given, not the nature of the channel.

He believes that various types of advice and sales services should be available through a single channel.

He says: “Some customers need full advice, some don’t have complex financial situations and require a less onerous service and some should be able to just buy products. As long as consu-mers understand the process and the protection available to them, there is no reason that these elements cannot exist under one channel.

“IFAs largely deal with high-net-worth individuals and by limiting advice to one channel, less people will have access to it. The whole point of the RDR is to increase the number of people receiving quality financial advice.”

Ex-CII Group public affairs director John Ellis says advice should not only be defined by independence.

He says: “I have known some tied and multi-tied advisers who have delivered advice superbly. The only difference between them and an IFA is that they have a restricted product range to offer. You could do the advice stage of the process quite independently of that.”

Ellis says that ruling out those who are tied and multi-tied from being an adviser could face barriers in Euro-pean law. He says: “There is a feeling that we are inhibiting competition too much by over-defining the advisory nest and it is a bit of an interventionist move on the part of the FSA.”

But The Consulting Consortium managing director Joanne Smith says it is natural that multi-ties would fall under a sales category.

She says: “One of the core aspects of this is that advisers must be truly independent. By having a multi-tied arrangement, there is an affinity to a small number of providers and therefore there are questions about how that person can be truly independent.”

Smith says the advice/sales split also raises questions over distribution for prov-iders who may be operating in the independent, multi-tied and tied channels.

She says: “Providers will need to decide what literature and service will be provided to individuals on an advice and a sales basis. Providers’ distribution models will need to be completely revised in light of the suggested changes.”

The report also suggests that the FSA will continue its work into whether it needs to restrict providers from taking financial interests in adviser firms, with a potential to look at reintroducing “better than best” controls.

Folkard says ownership of independent advisory firms by providers should have no bearing on the quality of advice given or on product recommendations.

He says: “We think that the current supervisory structure is adequate to ensure that firms remain completely independent.”


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