IFAs should not be forced to move to a fee-based system of remuneration as the lack of choice would ...
IFAs should not be forced to move to a fee-based system of remuneration as the lack of choice would be detrimental to consumers, concludes a report on polarisation by consultants London Economics, writes Kira Nickerson.
The report on polarisation, carried out on behalf of the FSA, recommends introducing a third tier of intermediation or remaining with polarisation. It has rejected the OFT's suggestion of a phased multi-tied arrangement, in which multi-tied advisers could sell investment products but only tied or IFAs could sell pensions products.
The economists also rejected the idea of separating panel selection from commission negotiation. The separation of fee-based IFAs from commission- based brokers would result in a migration of advisers becoming brokers, which would lead to substantial regulatory costs and some possible adverse effects on consumers as a number would be displaced from independent channels, the consultants said.
David Shelton, head of marketing at Clerical Medical, said: "London Economics has made it clear that if IFAs were only considered independent if they were fee-based, then many IFAs would switch to a tied or multi-tie arrangement. Consumers would not have the choice they have today. They have also validated panel selection and that it is done separately from commission terms."
However, the re-emergence of the multi-tie suggestion has caused some concern in the independent channel.
Robin Minter-Kemp, deputy marketing director, HSBC private clients, said: "Multi-ties will be able to offer choice and have brand and this will intimidate some IFAs. This is a danger in that many IFAs do not have a recognisable brand."
However, London Economics has argued that because of the strength and importance of the independent channel, few independent intermediaries would want to switch to a multi-tie arrangement. Through its res-earch it discovered that the IFA channel continues to grow, has good recognition among consumers and a strong customer base.
Paul Smee, director general of Aifa, disagrees that the introduction of a mid-tier will not cause a migration from the independent sector. This is going to cause a scramble for distribution, he said, adding it would also likely create confusion among consumers who are unlikely to know the difference between the three layers of advice.
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From 6 April 2019