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Towry &#39icing&#39 is sour for IFAs hit by ICS

Speculation over the fate of Towry Law finally ended last week when Australian giant AMP made its offer of£75.7m to buy the national IFA.

The deal finally put paid to the rumours in the financial sector since Towry&#39s decision to suspend its shares without explanation on February 23.

Fuelling the rumours further, the IFA only clarified the situation in mid-May when it revealed that substantial pension misselling liabilities had been found on the books of IFA Advizas, which it bought from Hogg Robinson in January.

Almost three months after Money Marketing exclusively revealed that Towry&#39s deal with AMP was on the cards, the acquisition has been ann-ounced and Advizas&#39£48m pension liability has been made public.

But the story is far from finished, with IFAs up in arms about the move by the Inv-estors&#39 Compensation Scheme to bail out Towry by taking responsibility for the lion&#39s share of the misselling.

In an agreement with the ICS, Towry has guaranteed to pay£13m towards the£48m total and AMP has put aside between£3.8m and£4.8m to pay investors not eligible for payment under the ICS rules.

It is the£30m that the ICS is taking on that is causing consternation, with some IFAs threatening to withhold their levy if they do not get a full and acceptable explanation for this unusual step.

London-based Dennehy Weller & Co IFA Brian Dennehy says: “This is scandalous as it is IFAs who pick up the tab. IFAs might withhold their levy and I want to know why the regulator is playing ball.If it was a smaller IFA, they would have came down on us like a ton of bricks.”

The ICS denies that this creates a precedent to do deals with other IFAs in similar situations as it says it looks at each case on an individual basis to decide the best way to red-uce the burden.

Financial Services Compensation Scheme director Suzanne McCarthy says: “Those investors who are eligible under ICS rules for compensation can now be confident that they will be compensated with minimal disruption under a controlled process.”

Syndaxi director Robert Reid says: “The ICS has not heard the end of this. It will reverberate around the industry. This has put Aifa in a difficult position.”

Aifa director general Paul Smee says: “The key thing for the ICS is to ensure that costs on the scheme are kept to a minimum by whatever route possible. I will be talking to the ICS about the details.”

IFA Partridge Muir & Warren managing director Simon Lewis says: “I recognise it would have been bad for the industry as whole if a professional firm was allowed to fail but it is sure to affect the ICS levy. If Towry Law or AMP could afford to pay for the misselling, then they should.”

Despite the furore, Towry chief executive Douglas Black says the firm is a popular acquisition target as it “is the most attractive girl on the block”and he dismisses the misselling as a mere “pimple”.

The deal with the ICS is not the only controversy to be sparked by AMP&#39s acquisition and its admission that the prospect of the removal of polarisation under the FSA&#39s current review is the “extra icing on the cake”.

But having an IFA in the hands of a major product provider has opened a debate in the industry about how Towry can prove that it is still fully independent.

IFA Tenet Group chief executive Simon Hudson says: “This may cause consternation among providers about a major Australian mutual taking over an independent. And an IFA owned by a provider can only sell that company&#39s products if it meets better than best rules.”

PIA spokeswoman Louise Buckley confirms this, claiming: “The better than best rule is fairly onerous but not impossible.”

AMP and Towry Law seem unperturbed by the better than best rule, saying many products are not covered by it, including term insurance, critical-illness cover and mortgages.

AMP also says this is only an issue in the UK market and that one of the reasons for taking over Towry is its international operations, including the Middle and Far East. Many IFAs predict that the AMP/ Towry Law deal is just the start of bigger players snapping up distribution ahead of potential changes to the current polarisation regime.

Holden Meehan director Amanda Davidson says: “There is more to come as this is part of a sea-change of national IFAs and networks bec-oming a prime target for product providers.”

Lewis says: “What could emerge is a two-tier Towry Law where people with a certain income will go to a multi-tie and higher-income clients will go to an IFA.”

Another aspect of the deal is the attraction of Towry&#39s investment in technology to AMP.

Towry has been developing an electronic new business project with IT company CMG and it has an interest in interactive investor. AMP itself is committed to electronic commerce with the recent launch of its Ample fund supermarket.

Financial Technology Centre director Ian McKenna says: “It is not difficult to see a synergy between a strong traditional IFA like Towry Law and what AMP have been trying to develop with Ample. AMP&#39s step could be seen as similar to Bristol & West&#39s acquisition of Moneyextra and its move to develop it into a national IFA.”

Some figures in the industry are speculating about the future of Douglas Black now he is no longer king of the Towry castle.

The deal means AMP (UK) head of financial planning John Simmonds joins Towry&#39s management team to take charge of the AMP/Towry strategy and its managing director Tom Fraser will take overall responsibility for Towry.

One industry source says: “AMP must give Black a lot of autonomy and money to play with if they want him to stay as he is a real deal-maker.”

But Fraser says: “Douglas remains chief executive. John is not his number two in waiting.”

The deal may have been announced but it is clear the dust created by it will not settle for the time being, not least the controversy around the ICS deal.

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