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Outside Edge by Robert Reid

In my last column I expressed my surprise at the recent Towry Law deal

done with the ICS. From the point of timing, it could not be worse as

levies will be collected in July and August (yes, there are two this time).

Is this the chance we have been waiting for? Polarisation will go,and we

need to ensure that what follows gives professional advisers a chance to

prosper.

Am I alone or is there a feeling of déjà vu about some of the

recent acquisitions? The parallels with the rush for estate agents is

unmistakeable.

Buying market share organic growth is always a point of debate as a large

number of firms all commit to growth in the number of registered

individuals which could never be achieved without the use of cloning.

For some commentators to suggest that this shows confidence in the IFA

sector I would contend that they are wide of the mark. The introduction of

multi-ties will allow for a more profitable operation in the short term

and, as we all know, the pursuit of long-term profitability is not a

character trait of the bigger financial services provider.

To put another way, the shareholder is always more important than the

client. The introduction of multi-ties will give true independents the

opportunity to prove their worth, as clients begin to pose the question

“exactly who are you working for” and this becomes the ultimate test of

independence – are you working for the client or your firm?

Whatever the bigger operations operating multi-ties may say, their

advisers work for them and not for the client.

Recent surveys have suggested that the public place a low value on the

provision of advice. Is this not because they fail to recognise the amount

of work the IFA does to produce a single recommendation? If we are to

change this mindset, then we must ensure our advice costs are fully

transparent. To ensure this is not frustrated by product design, we must

lobby for the introduction of truly clean contracts.

Under a clean contract, the commission or fee is separate to the contract

itself, if a distributor, an IFA or a multi-tie wants to take more

commission or fees, then the cost increases. This would avoid the current

situation where higher commission is offered based on the inherently flawed

concept of volume being equivalent to profit.

I only hope that in the review of polarisation and the parallel review of

retail investments that the powers that be recognise the dynamics at work

and the correct model if consumer choice at a reasonable price is to be

delivered.

Ron Sandler recently declared that he would be speaking to IFAs while

conducting his review. This is welcome but I only hope he selects them with

care, given the favour that some have expressed for multi-tied

distribution, either publicly or priv- ately. This may mean that the days

of the commission-only IFA are at threat but perhaps we will all appreciate

the demise of less profitable clients in favour of a business which has

true value when it comes to selling it. This can only come through

transparency and an increase in professionalism.

To return to the issue of the ICS, some IFAs have suggested that they will

be withholding their ICS payments. Shouldn&#39t we all, at least until the ICS

explain just how this deal is in the best interests of the sector and not

just the shareholders of a particular adviser in isolation.

What about Ilog? Will it withhold their payments too? If it truly want to

supports IFAs this is its chance to nail its colours to the mast.

Robert Reid is principal of Syndaxi

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