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‘Product providers propping up unprofitable networks’

Paul McMillan finds Falcon taking flight with wraps but warning of some major IFAs falling from grace

Product providers need to question if they can continue to prop up unprofitable national IFAs and networks if the industry is to move forward, says Falcon Group.

Group operations director Julian Telling claims that some listed competitors are losing “phenomenal amounts of money” and do not have the ability to reinvest in their businesses, relying on providers to bail them out.

He says several adviser firms came to the market with just a business idea but Falcon had over 20 years’ experience before parent firm Sumus floa- ted on Aim in February.

Telling says he and chief executive Allan Rosengren own around 60 per cent of the business, unlike other national firms and networks, which he says have little to lose if their businesses fail.

He predicts a wave of change in the market in the near future, with consolidation expected in the IFA sector and between providers.

Business development manager Piers Denne says future success for IFA firms depends on creating more interdependence in the relationship with providers, with the IFA firm owning the value chain and the potential for future profits. He says this will increase the trend of managing wealth rather than selling products.

The firm is adamant about the value of truly independent advice, seeing multi-tie as an unacceptable avenue.

Denne says: “Any move to multi-tie would let down cli-ents, offering them a service that the adviser knows not to be in their best interests.”

He also casts doubt on the ability of advisers oper- ating with separate independent and multi-tie hats, describing the situation as unworkable.

Falcon says its unique selling point in the market is its risk management strategy, with a compliance department vetting and overseeing every piece of business by its members on the same day.

Telling, who oversees the company’s compliance, says the policy has been in place for the past 12 years, ensuring that the firm has avoided most of the misselling problems surrounding products such as precipice bonds and endowment policies.

He says the policy was imp- lemented after Scottish Wid- ows and Norwich Union were fined by Lautro for their sales methodology, with Falcon realising the future implications for the industry.

Telling believes there will be misselling problems from the sale of non-stakeholder pension products. The firm’s professional indemnity insurer has pointed to this area as having the biggest liabilities.

He says: “Advisers will have to be very careful that when they have advised on products such as drawdown, they can provide evidence that this route was better than buying an annuity.”

The other area of concern for Telling is equity release, particularly over potential future claims from relatives of the people who have bought this product.

He says that Falcom has a mandatory requirement in the advice process that beneficiaries of the clients need to have signed a letter acknowledging what is taking place. In cases where the client does not want to involve beneficiaries, a letter stating this intention must be signed by them.

Rosengren says this commitment to risk management forms the backbone of the firm’s offering so it has to be careful when looking at potential acquisitions, making other networks and big IFA firms unattractive although he does not rule out a move in the future.

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