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Pru will help IFAs adapt to survive

Prudential&#39s analysis of the outcomes of CP121 are decidedly different from those expressed by others in headlinegrabbing soundbites. We have a passionate belief that the independent sector will survive, albeit in an evolved form.

Our position is clear. Prudential believes that the IFA community wants to remain substantially independent. The ambition we have is to work with IFAs to help them make the right decisions in the new world.

We will not be concentrating our energy trying to persuade IFAs that they should tie to us. I really believe this stance will mean that Prudential will emerge with its reputation enhanced.

We anticipate that Prudential&#39s existing relationships with advisers will be even stronger post-polarisation. We will work closely with our existing advisers to help them explore all the options – to remain independent, to become authorised financial advisers or to tie.

For those IFAs who believe that retaining their independent label is critical to their future success, the FSA&#39s proposals for the defined payment system provide ample scope for them to do so.

The regulator actually says in CP121: “Our solution is to promote a defined payment structure which aligns the concept of independence with the customer expectation our research revealed while avoiding consumer resistance to writing cheques for fees and tax inefficiencies.”

Prudential also intends to review its product design to enable IFAs who want to remain independent to do so with the minimum of disruption to their business.

In the Pru&#39s view, the FSA proposals create the opportunity for IFAs who can embrace the defined payment system to become still more successful as the public&#39s perception of the value of independent advice is enhanced by the CP121 proposals.

Equally, the proposals for authorised financial advisers will enable those who want to keep their remuneration by commission on exactly the same basis as now to do so, without becoming tied or multi-tied. These former IFAs will be able to continue to do business with Prudential and other providers exactly as they do now.

For those who choose to remain independent, we believe this will see IFAs initially going down the route of agreeing a fee with the customer based broadly on the amount of commission they would earn under the current arrangements. The fee will then be collected as commission and remitted to the IFA in the usual way. Over time, we expect to see IFAs move towards a basis whereby the fee more accurately reflects time spent although the adviser and the customer will still want the provider to deduct that fee from the product.

Initial research conducted by us with IFAs suggests that if they believe the independent label is critical to their future success – either because of their client base or the way they do their business – then they will adjust to the DPS method of payment. Early suggestions are that many IFAs regard this as excellent news as it will raise their status in the eyes of customers.

IFAs who believe the independent label is not critical to their future business success will simply call themselves something else, continuing to do business with providers on just the same basis as at present. This category of IFA could, as the FSA suggests, become the new breed of authorised financial adviser.

Furthermore, Prudential does not see the benefit in bigger IFAs becoming distributors by tying to offices when they would remain fully responsible for their own compliance.

One reason for such a decision being taken could be the commission rates available to tied agents. But as the appointed representative model with its higher commission rates has shown, IFAs have real affinity with their independent status and there is nothing that indicates they have a desire to change this in the future.

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