Park Row has been mentioned as perhaps providing a new yardstick by which to measure a multi-tie. This may sound like we are jumping the gun – we will not see the first official multi-ties until early 2005.
However, we don't think multi-ties are a one size fits all solution. Having spent six mon-ths trying to make them fit, we have decided that the way the multi-tie market is developing, it is impossible. I am not, though, saying that multi-ties are fundamentally flawed.
Where, as the regulator intended, multi-ties are introduced to increase consumer choice (such as for tied and direct salesforces), interesting models are being developed. Consumers should eventually benefit from these options – accessibility and choice, heavy motivators for the FSA and the Government.
We have an issue with the introduction of multi-ties in the independent sector. You have to consider the immediate impact – customer choice is compromised.
There are other alleged benefits from moving from IFA to multi-tie – lower costs, greater support, integrated technology and so higher margins for sharing remuneration within a relationship. But such relationships do not yet exist. In the short-term, such positives will not materialise.
In the longer-term, commission pressures (we believe non-multi-tie providers will resist the commercial forces dictating that commission rates must fall – until the market settles down) and service levels (withdrawal of face to face over time for smaller, directly regulated businesses), mean there will be a slow rise of recognition from some that multi-tie may be a more comfortable home.
We looked at offering IFAs multi-tie offerings for their pensions and investment business. We also looked at mortgage and protection separately.
In the commoditised products markets – mortgages and protection – which already work on a higher technology level and usually have simpler product and sales processes, we will all realise the benefits of working closer with some providers. We will be running wide panels for mortgages and protection and protecting our advisers' independence. These panels are being built around research. We have five building blocks:
Improving our current proposition for clients and advisers.
Increased and wide choice of products.
Consistent processes for all business.
Adoption of full technology and e-submission (where available).
Ensuring high levels of service and support.
In return for mandating electronic business and offering controlled distribution, along with a comprehensive MI package and commitment to developing those relationships, we can justifiably secure top market rates. We are not just squeezing for more commission or higher fees in isolation. This will enable us to offset higher regulatory costs while our advisers' income increases to reflect their input.
In the short term, we cannot see any positive advantages for consumers, advisers, distributors or providers in committing to a multi-tie model for pensions and investment business.
IFAs have aspirations to remain independent and having invested time and resource considering otherwise we have restated our absolute commitment to independence. It is what our clients want and what our advisers want to provide.
So, why are so many distributors and providers rushing to the brink of multi-tie? First, there is no regulatory requirement to base a multi-tie model around “best of” or research. Second, margins are falling, mainly due to regulatory restrictions. There is less money to be made and commission rates are under pressure.
There are two major influences on the shape of IFA multi-tie:
Providers – there is a land grab for distribution. With commission rates falling, there is a need to be able to do more with distributors and have a guaranteed route to market.
Distributors – non-profitable business models and increasing financial squeeze on cash-flow and/or share prices means multi-ties were being used as a solution for cash injections and keeping ailing businesses afloat.
Fortunately, we can take the high ground – in Royal Liver, we have a financially secure and strategically supportive parent. This has made our step aside that much easier. Royal Liver believes in distribution and is looking to build on this as a key part of its strategy to focus on the delivery of sound advice and competitive financial services products.
The recent letter from the FSA to chief executives of providers and IFA firms was sent to pull the plug on those with funding aspirations shaping their thinking. Time will tell how effective this is.
Will we stay out of the multi-tie market for good? No, we will continue to watch developments. If we see models offering value all round and this creates interest from our advisers, we will come knocking. However, give it 12-18 months.
The panacea for us and our clients is clear multi-tie models being built around genuine support and integrated technology. That will take time, money and a spirit of co-operation and openness not yet experienced between those involved in the development, administration, delivery, sales and maintenance of financial services products.
Jo Smith is head of business development at Park Row