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Multi-tied in knots

The publication of CP121 by the FSA has certainly opened the

proverbial Pandora&#39s box.

The debate has shifted up a gear with spin doctors on each side

decrying the other.

Before anything is accepted, the whole process of consultation is

going to take place. If, as many allege, the multi-layered

authorisation structures will happen in any event there are going to

be many questions asked before the industry gets to grips with the

new regime.

The legal minefield that a multi-layered approach will open up is

mind-blowing. It does not take a genius to work out that the poor

consumer will be very confused about the new regime.

We already have “independent” mortgage advice provided by tied

insurance agents. Some chain estate agents cleverly confuse what is

and what is not independent.

I can only start to imagine the confusion that will be caused when

multi-ties, distributor and authorised advisers get to work on

implying independence without actually being independent.

The use of clever marketing by those who advise on a level below

independence is within a very short time going cause confusion.

Quite simply, many consumers do not care enough to understand

polarisation, never mind a system with multiple levels.

These are the key legal issues and problems

Tied agents

Clearly, the average agent will become a representative of one

provider who uses the products of another.

This makes the responsibility of advice and compliance that of the

provider, unless, of course, they use forms of delegation to drop it

back on advising practice.

What about prior advice, what about transferral of whole client

banks? Will this novate liability?

What about off-provider panel products brought with the clients of

the practice? Who will give the advice?

To switch to a tied situation is going to prevent further advice on

products outside.

My concern is that there will be a sustained effort to “transfer” in

products to the provider. I can already see the roots of a mass

product churn as advisers switch products so as not to lose their

ability to advise on them.


The proposals are not clear enough to say whether there will be a

limit on the number of agreements. If there are then let me paint

this picture.

A distributor sells a Skandia Isa, a Scottish Mutual bond and Invesco

unit trusts. Overall at a later date the whole portfolio is deemed

inappropriate. Who shoulders the responsibility? All the companies?

Equally? Do they haggle among themselves?

A lawyer&#39s delight but a nightmare for a client.

Authorised financial advisers

Commission-only advisers. The stigma of the commission-only

salesperson is one that has dogged financial advisers for years. What

can only be described as deeply confusing is then compounded by the

fact that any adviser worth his salt is going to find ways to imply

independence without actually being able to say it.

For example, could you say “I can survey the whole market for you

independent from being tied to one company” or “I am authorised to

look at each and every product and see which is more suited to your

needs and objectives”?

This is madness as what value has being truly independent got if you

can run a horse and coaches through being an AFA to imply

independence? How many consumers will check this? Are we going to

receive a list of words we can say and one which we cannot?

How will this be enforced? Will the FSA have time to discipline firms

who take no notice and imply independence? The whole idea seems to be

littered with complicated legalities and potential for liability and

client complaint.

Independent financial advisers

The independent sector (that is the one that really is and is not

masquerading AFA firms) will need the following:

To be VAT registered.

Adopt a disclosure plus regime.

To think hard about capping prior advice liabilities.

To be clear on which market they are going to aim at.

The “defined-payment system” needs a lot more detail but it is my

contention that if the regime forces such an onerous disclosure

process it will actually do more harm to the independent sector than


What to do now? Let us be cynical and assume that the changes are

going to happen. You need to be very clear as to the way in which

your firm should go. If you are to remain as an independent adviser

then the conversion of your client to fees and offset arrangement

needs to start now.

If you wish to be an AFA, distributor or a tied adviser you will need

to be very careful about who you jump into bed with. The whole basis

of change is that you will have to deal with your existing clients,

decide how you deal with them under the new regime and then chose

very carefully who to jump into bed with.

This is going to be a very difficult thing to do. Insurers may flirt

with you and offer you the world but they are not doing this for

anything else other than distribution.

Providers are already flexing their muscles and getting their

chequebooks ready. Play hard to get, keep well informed on the

changes and act with your business objectives in mind.

If you have any questions for Money Marketing&#39s legal surgery,please

email them to

Please note that neither Money Marketing nor our legal correspondent

can accept any liability for answers given to queries

Gareth Fatchett is principal at financial services lawyer Armstrong

Neal Financial Solicitors and a director of ProAct


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