The feeding frenzy displayed by the providers in their attempts to
secure distribution involves the use of massive lump sums and
anti-competitive commission levels, please tell me how that reduces
their distribution costs when you add the fact that they are also
responsible for the compliance costs. It won't work, it really won't
work here any better than it did in Oz.
Alice in Wonderland strikes once again, when is common sense going to
prevail? Or is the use of this attribute precluded under the mountain
of mad regulatory rules?
FSA warns of high cost of small IFAs
PROVIDERS forced to rely on small IFAs rather than multi-tied agents
could face higher distribution costs, according to the FSA.
In the City watchdog’s Financial Risk Outlook report for 2005, the
FSA claimed insurers unable to secure distribution through the new
multi-tied sector in the depolarised world might face higher
distribution costs.
The 92-page report said providers who failed to secure multi-tie
deals and became more reliant on a large number of small IFAs as a
result were most likely to see distribution costs escalate.
Evan Owen, director of the IFA Defence Union, said he would like to
know how the FSA arrived at this assumption, given that 50 per cent of
the market was made up of small IFAs.
He criticised the regulator for only paying mere lip service to IFAs
despite the size of the industry.
Advisers were mainly covered in the final two pages of the report,
which was published last week. Questions were also asked about the FSA’s
failure to take into account the risks created by providers dropping
their appointed representative distribution channels in favour of
multi-ties.
Mr Owen said it seemed illogical for providers to turn their backs on
a channel where they could possibly control compliance in favour of
distribution in a multi-tie market where they had no way of controlling
compliance.
He said: “The FSA insists that an unincorporated IFA carries
liability for life and beyond.
“Networks are one of the greatest risks to both the industry and
the Financial Services Compensation Scheme.
“Too many small IFAs have found out to their cost that reliance
upon the network to do the right thing is naive in the extreme and when
a network goes under it makes a mockery of the statement that small IFAs
existing in the market will put pressure on the FSCS.
“Once again we see the last few paragraphs of an important document
being devoted to the distribution channel [IFAs] that accounts for the
lion’s share of retail distribution.
“We [IFAs] see mere lip service – not very constructive.
“In fact it is simply another attempt to decimate a profession by
stealth.
“Is this pandering to the whims of the banks who will once again be
allowed to pretend they offer a choice?”