After six years on the Sofa board, including two years as the chairman, and a practising IFA since 1985, this new fortnightly column is designed to reflect my views on the challenges IFA's currently face. I cannot guarantee that my views will always be popular but I am certain that they will make you think and hopefully encourage you to debate the issues raised.
While on the board at Sofa, I was one of the small team of directors who prepared our submissions on polarisation. I met with the OFT and the FSA in an attempt to explain why any changes had to keep the consumers' interest as the prime driver for change or for retaining the status quo.
As submission followed submission, it became clear that the reason for the consultation was not improving consumer choice but ensuring that the banks and insurance companies would take part in promoting stakeholder pensions.
The FSA has now issued its consultation paper on Reforming Polarisation and this is one document that all IFAs should take the time to read.
Considering this paper as a whole, I have to comment on the lack of substance in many of the assumptions – that is, no research to support the conclusions. This is very worrying as it is these assumptions which will form the foundations of the suggested changes.
There also seems to be the view that the introduction of multi-ties will automatically result in clients being offered more competitive contracts.
This is either extremely naive or simply heralds the introduction of Catmarks on all products, not just Isa and stakeholder pensions, with non-Catmarked plans only available via IFAs. The limited time for responses will inev itably result in the consultation being less effective than it should be for such a major change.The paper is not all good news for the fans of multi-ties either, given that individual tied agents or franchisees will not be able to be multi-tied as the paper suggests that the “host” must be a provider. This then raises the issue of complaints, especially where the host office no longer has a relationship with the provider who issued the plan.
The logistics of making or dealing with a complaint in that particular circumstance will be immense, especially if the claim is to be dealt with promptly. There is also the risk that the client finds themselves between two parties, with each blaming the other.
The paper states that the objective is to “secure for consumers greater access to and choice of good value products”. It is hard to see how these proposals could truly achieve this without a level of status disclosure that would deter any organisation in taking up the option of multi-ties.
The London Economics report made it clear that any change would require clarity of status given the public's confusion over the current status of the major banks – that is, they assumed they were independent, when they were in the majority tied to a single provider.
One solution would be to refer to all tied and multi-tied advisers as investment/ insurance salesmen, with only independents being able to use the title financial adviser/planner. To make this work, IFA's would probably need to move to a fee-based approach.
The regulator may well prompt this move as they have already stated that they intend to review the various methods used to remunerate the adviser. Change is on the way let us just hope that the FSA does not deal with the consultation process in the most Equitable manner.
Robert Reid is an IFA with Syndaxi Financial Planning