FSA: using just one platform will not rule out independence

Spelling!

(I know this is the pot calling the kettle black in my case).

good - finally a little pragmatism from the FSA.

Rory is such a sensible bloke, I'm so glad he's still involved in the FSA work on wraps. Most of the madness reported on this subject comes from talking heads in the industry fighting their corner. Whereas Rory is an oasis of calm and sense amidst the revolving doors at Canary wharf.

One platfrom doesn't compromise independence provided your client bank is homogeneous: The FSA wrap team have been remarkably consistent on this, but other RDR-related piblications had cast doubt on this. so it's nice to have it restated.

No change on the ban of rebates: Good. (Q lots of wailing from the usual suspects).

Rory Percival, that's where you've ended up!!

You have my deepest sympathy!

Sorry: platform!

(What was that about pots and kettles)?

How can this be right!

Does this mean if SJP call their offering a 'wrap/platform' they can become independent?

More well intended clarification which is likely to stir up more debate about the definition of homogenous, a word derived from "Homo" meaning same and the Greek "Genos" meaning race or kind. Well presumably, that means that all clients with a pulse can be serviced via one platform. Why couldn't Rory just say that! Thanks for the helpful (not) clarification.

If Tim is referring to homogeneous being spelt as homogenous he should be aware that OED icludes both spellings.

What is important is not the spelling but the meaning. Homogeneous means all of the same kind, and the term was used to describe whole milk that did not have cream floating on the top; homogenized milk. The FSA announcement is welcome, but clarification of what they mean by homogeneous is essential.

This article is very misleading. I was at the event that this story is derived from and Rory did not say anything like what has been reported here (though the out of context quote is accurate).

He refused to be drawn into saying anything too general and merely said there did not to be separate due diligence for each and every client, and that those with a diverse set of clients (how many advisers do you know with a homogenous client base??) would definitely have to consider a range of options.

I'm sure if you asked Charlie Palmer (who posed the question), he'd confirm that the answer is still up in the air, and big questions remain over the use of non whole of market wrap propositions. His continuing conversation after the panel session seemed to indicate such...

Sorry Tim - and 'piblications'.

That makes pots, kettles and pans!

@ Anonymous 1: The original article had mispelt "suitable", but it has been corrected. I wish they could do the same for my posts. :-)

Aidan - Do SJP have an 'homogenous' client bank? I very much doubt it.

To be fair to the FSA, their message has been consistently the same for years but thanks to Rory for saying it again. No doubt the waters will be muddied again by 'whole of market' platforms suggesting that they are somehow 'more' compliant.

I would be interested to find any advisor that has an 'homogenous client bank'. Surely most of them are individuals with different needs and attitudes. Like everything else this is the FSA giving us enough rope to hang ourselves with.

The Elevate wrap is the answer, its perfect.

I'm with Bob Donaldson on this one, wait for the uturn

Another can of worms!

My understanding was that an IFA could indeed only use one wrapper - mainly because Skandia promoted this thought many years ago.

However we are generally referring to investment based business here, with protection being sourced via an IFA search engine e.g. the Exchange or Assureweb etc.

That differentiates the IFA from the likes of the SJP proposition.

But the can of worms?

Unregulated advisers who clearly must place protection on a non-investment basis (i.e. term insurances only) can however still give the impression that they are independent. They call themselves independent mortgage advisers and naturally sell some term assurances to cover the mortgages that they have just placed.

In addition, we have all read about ecomomic predictions regarding the price of gold. Yet we also see relentless adverts for "got gold get cash".

I suspect that we have firms giving specific financial advice here with no qualified staff and no apparent real advice other than to encourage churning of gold reserves. It's an execution only service with an advert for churning gold into cash for a fraction of it's current value and with no regard of it's potential future value or where it currently lies in it's own cycle.

To me, the so-called regulator has given in.

Pathetic!

Or am I just a cynic?

I agree with Bob Donaldson. Either this means all clients are homogenous ie because they are human - or alternatively that none are because all humans are different.. Therefore the FSA must definewhat a homogenous client base is, but won't, because it means making a choice.

'homogenous' client bank -

does this mean if you are a customer of a bank then you are all the same ?

Anyone looking for practical help on this should look at COBS 6.2A.18 to 21 which deals with panels post-RDR (although you can adopt these rules now if you want).

My conclusions are:

At one end of the spectrum, choosing one platform/wrap and shoe-horning all of an average IFA's clients into it is clearly a "no no" (especially if there is a commercial link up). I think this is what the FSA is concerned about. (Aggregators beware).

Clearly some IFAs with small client banks of similar (likely to be wealthy) clients will have no problem operating as an IFA with one wrap (provided they are not contractually tied to it).

At the other end of the spectrum, the FSA recognise that doing full wrap due diligence on every case and having a different wrap for every client defeats the whole point of wrap.

I suspect the "average IFA" (if there is such a beast) will not want to radically cull their client bank and so will need to adopt two or three with each platforms serving different client segments. (Less than ideal from a business efficiency point of view but that's life).

As ever the secret will be proper documentation at a firm (rather than individual case file) level to show the FSA you’ve started from a whole market view and how you’ve arrived at your choice of wrap.

Whilst helpful, Comparator and other comparison tools can be an answer, but they are not the answer.

I’m sorry this is not a simple as people would like. But the more I think about this more I realise that detailed FSA prescription would either kill the whole wrap thing off or let the aggregators run riot (and then kill the whole thing off).

The less complications for the distrusting public, the better.

This is good news

I would genuinely love to believe that the FSA is trying to send a message to IFAs who naturally use one or more wrap propsitions for the majority of their investment clients.

Unfortunately I have to conclude that this is but a soundbite - and probably one taken out of context. It helps nobody and, until the FSA puts out a definitive advice notice to advisers regarding wrap usage and "Independence" the whole woolly, grey area will be a minefield for genuine advisers and a goldmine for consolidators of whatever persuasion.

I have used Adviser Asset to assess the charging structure of different wraps for some time, and it does help to demonstrate to clients a level of the differentiation of offerings. This is only on a pure cost basis, but for me it is informative and clean. It does not tell me that XYZ wrap has more ETFs than ABC wrap, but 99.9% of my clients couldn't care less.

The FSA - and the IFA community - are over complicating an area which has had a huge effect on the overall cost to clients if purchasing investment funds.

If this is true it will last right up until the first audit as per usual. After a year or two of complaints the FSA will then make clear the audit situation as if they never made their original statement to begin with, the ombudsman and compensation sceme will be provided with a new stream of work ensuring their future.

Round and round we go like the dumbest dog chasing its own tail.

If this is true it will last right up until the first audit as per usual. After a year or two of complaints the FSA will then make clear the audit situation as if they never made their original statement to begin with, the ombudsman and compensation sceme will be provided with a new stream of work ensuring their future.

Round and round we go like the dumbest dog chasing its own tail.

There are some good comments here although I am quite surprised that that one very important point seems to have been overlooked by many commentators. That is because the Wrap market is still very much in the developmental stage and their owners in constant negotiations to sell and buy their businesses why would you take possible risks with your clients assets and indeed your own businesses by using just one Wrap platform?

I wonder how many people wil put this article in their compliance file

Once again clear as mud. Sorry guys (and gals), but the FSA are clearly missing the point here. We can either service our clients with a clear and consistent 'robust and repeatable' process through the selection of the most suitable wrap for our business model, or we can run around trying to be a jack of all trades or master of none.

I myself use a wrap and after the due dillegence (repeated on an ongoing basis to ensure it remains valid) I can tell you now that it takes a lot of time and effort on behalf of the IFA to learn how to use a wrap product to its best ability. If we continue to play around with a number of wraps or individual insurance company products we are not best serving our clients.

Each IFA practice will reach critical mass (we did several years ago) where unless you adopt the wrap principal you cannot grow beyond being a very small IFA practice.

Since changing to using a wrap the feedback from clients has been tremendously positive, as it is much more transparent and through model portfolio construction I can monitor a large number of clients' investments far more regularly at no extra cost.

In turn I have been able to grow my business and give a far better level of service.

Surely with the FSA increasing capital adequacy levels and focussing on client servicing, this ticks all the boxes.

I will add that when a product isn't available via the selected wrap it is still recommended, as after all I am still truely independent.

I have to totally agree with Julian Davies. However, I have to point out that it is us that are Truly Independent. (tongue in cheek).

Being Truly Independent means that we are not tied to, owned, funded or influenced by any bank, product provider or other third party. This gives us the freedom to use advice on the best financial solutions without restriction....and we answer only to our clients and the FSA.

Unless an IFA can state this without compromise, then you are not Truly independent. It does not matter if you advise on one wrap or ten - the basic principles of true independence needs to be achieved first.

All too often I see IFA's own convenience and greed come ahead of Clients own needs and costs when Wraps are selected - unfortunately high FBRC this is being allowed by providers and I would prefer the FSA to target the providers first; placing restrictions on rebates is very much part of that process.

It is our job to recommend a suitable product at a fair price to the client and then backed by ongoing service agreements.

So far, I do not see the FSA placing any restrictions on any IFA's.

Anonymous 4 & 5 - brilliant comments

Ivan Robinson - are you a member or a network by chance..........

Who cares - we are heading for "restricted advice" in any case.Post RDR will there be any IFA’s left? With the predicted decimation of the sector those remaining will find restricted advice more attractive. Can you really advise on the whole market and is it really necessary? UK regulation “outlaws” those it regulates and it makes financial advisers a consumer cash cow and all without the defensive mechanism of common law. Post RDR an IFA will be obliged to prove the impossible i.e. that no other product(s) service or platform would better meet the client’s needs. This is likely to be retrospectively applied as the FSA are now doing and those needs will be the needs of the client after the point of sale. In order to defend the lable indepentt there will be increased costs and those increased costs will most likely be met by a reduction in profits. Tied advice is the agenda of RDR.

actually someone makes a very good point here, Aiden made it above, why not place the articles where FSA staff make comments in our compliance files?

Especially ones where particular FSA staff wish to 'clear things up and provide clarity' ? Surely if the article is verbatim quotes then it should carry some weight?

RE Joe King's comment - obviously you've only been in the business for 6 minutes or you work for AXA!!

Or maybe Joe King's name is a clue as to his true feelings about Elevate...

Very true Mark N Lard. Great names the pair of you!

Mrs A - Why thank you.

Peter - a right laugh