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Review could be a tie-breaker

The latest industry thinking on the FSA’s retail distribution review interim report suggests that if the proposals are unchanged, multi-tie companies will need to overhaul their business models.

Ernst & Young insurance leader Shaun Crawford says any multi-tie organisations will have to seriously consider moving to a whole of market offering if their businesses are to survive.

He says any multi-ties considering flotation could suffer from the effects of the retail distribution review as their entire distribution model will need a rethink.

Crawford says: “It is quite clear that organisations such as Thinc, Intrinsic and Openwork will have to now be thinking about their overall strategy and introducing a whole of market offering.

“They will also have to review their platform propositions, simplifying the offering in order for less-qualified advisers to use them effectively. If the FSA goes ahead with this, and it looks as though it will, then multi-tied advice models will take a real kicking.”

Crawford says to meet the regulator’s proposed requirements, advisers must be diploma-qualified or equivalent and he suggests that many multi-tied advisers might have to undertake a long period of additional training to reach this level.

Multi-tied network Thinc has already confirmed that it is reconsidering its distribution strategy in light of the retail distribution review but others remain tight-lipped.

Propositions director Jon Everill says the firm will make a decision later this year and one of the outcomes could be to abandon its multi-tie model but he insists it has no definite plans.

Everill says Thinc is not worried about the RDR but says he expects that all multi-tied networks will review their model.

He says: “I would hope that everyone would look at their model as a matter of course. We do regular reviews of how we operate to make sure it is right commercially for us.

“We are reviewing our strategy based on what is going on in the market. We are in a period of discussion and analysis. We are not prepared to say what the outcome will be as nothing is concrete. We would like to be in a position later this year to make an announcement.”

Perception director Phil Billingham says he thinks most multi-tied advisers will move into the whole of market model rather than a pure sales proposition.

He says: “They are capable of it, most of their advisers have come from that model. It will take a little bit of time and a little bit of cost in terms of transferring systems but I think they could make the move.”

But Billingham adds that he thinks the current proposals are “a bit harsh” on multi-tie propositions.

He says: “There are a couple I am aware of that are designed to, and are very capable of, giving good advice to a mainstream market that most IFAs would not be active in.

“In most cases, it would probably give the consumer a better outcome than if they were forced to go direct to a single tied bancassurance model and they would be better looked after. If there is a compromise available that would keep those multi-tied operations available to consumers, I think that would be good.”

Nucleus chief executive David Ferguson says the best option for multi-ties might be to become tied to a single provider rather than making the move across to whole of market advice, which he says is a much more complicated proposition.

He says: “A lot of multi-ties are not actually that multi. It might actually be just as strong of a customer proposition to go back to being a single tie and operating under the sales banner. I do not think that would require a huge culture change.”

One source believes that Intrinsic’s model is best positioned to make the move across to whole of market advice.

He says: “I have looked at the Intrinsic model and I think it has a lot of merit for the right market. Openwork has a bit more legacy so will find it more difficult and St James’s Place is a different model altogether.

“Most Intrinsic advisers have had some whole of market experience, I would have thought at least 70 per cent. I think that is less true of Openwork and even less so of St James’s Place.”

True Potential senior partner Daniel Harrison says multi-ties should move into the whole of market sector, but doubts many will.

He says: “We are very strong supporters of independence and we have always thought the multi-tie model was a poor idea and a very poor model in relation to what a client can get. The client can only get the best deal and the best advice through whole of market advice.

“Multi-ties were historically formed because of who owned stakes in them. That, to me, was a move that was done for the shareholders of he company, not the clients of those advisers. It was a flawed strategy in the first place.”

Billingham says the FSA’s proposals have made it clear that the dominant force in financial services is the IFA market and that dominance is set to be increased.

He says: “We are going back to polarisation and that is good for consumers because they will know exactly where people are coming from.

“They are either advisers working for the client or they are salespeople who are agents for the provider. That clarity has to be good for consumers.”

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