MoneyTalk (January 2005)

by Arch Financial Planning Limited

A CHOICE OF THREE

We would like to wish all of our readers a Very Happy and Prosperous New Year. Apart from anything else, 2005 is already destined to see the biggest regulatory change in financial services distribution in nearly 17 years. In a country where three quarters of people do not take advice on their retirement and most people spend longer planning their annual holiday than their finances it may not, of course, have much impact.

During the last nearly 17 years we have lived under something called ‘polarisation’. Put simply, the person giving financial advice was either an independent financial adviser (IFA) or a company representative. If your adviser was an IFA he or she was wholly independent of any product provider and acted on your behalf. When advising on a product purchase, they were able to find the most suitable product from the whole of the available market. Alternatively the ‘adviser’ was a representative of one company and could only ‘advise’ you on their products.

That was a fairly straightforward system but it was deemed anti-competitive, both for consumers and the representatives ‘tied’ to one company. By 1st June 2005 all UK financial advisers have the opportunity to decide whether they will remain as they are or move to a third option, that of being able to advise from the products of a limited number of product providers (probably three or four).

So that you are not confused, or mislead, about the type of advice you are to receive all types of financial advisers will have to provide two new documents to you by 1 June 2005 at the latest, and from next week for those who are ready. The first is an Initial Disclosure Document (IDD) explaining who the adviser is and the type of services they offer. The second is 'A guide to the cost of our services' (The Menu) detailing costs that will apply to their services.

The three options

(1) Your adviser might be a whole of market IFA. These will work in a similar way to existing IFA firms. They will give advice across the whole market or market sector. They must source products they consider the most suitable of any that are generally available. Most importantly, they will act on your behalf. They must give you, the client, the option to pay for advice by fee (rather than commission) if you prefer.

(2) Your adviser might be multi-tied. This is the new distribution channel which has evolved from the ending of polarisation. Such an adviser could be tied to two or more product providers. This means they can only advise you on the products of those providers, although there can be flexibility around which products are sold. For example, they could sell the entire range of each provider or could sell only the pension products of one and the investment products of another. There is no limit to the number of providers which advisers can ‘tie’ with for products or providers but it is generally felt that the marketplace will keep the numbers fairly small. Most importantly such advisers will be agents of the companies to which they are tied.

(3) Lastly, your ‘adviser’ could be single-tied which would mean he or she can only sell the products of one company.

We believe that the real division is between the whole of market IFA (1) working on your behalf and multi-tied (2)/single-tied (3) advisers both offering the same thing, ie restricted ‘advice’ and working as agents of their companies whether one or a number.

In the past many investors seemed to think that they were receiving impartial advice from their bank or building society when in fact they were dealing with a company representative of that bank or building society. It will now be even easier for investors to think they are getting impartial advice from banks, building societies and other organisations when the products of a number of companies are shown to them. Now that you have read this you will know that such advice is still tied and not impartial.

Arch Financial Planning Limited has already decided that we will continue to offer advice across the whole market. We hope that you will continue to choose independent financial advice for your own financial planning needs in the future.

If you would like to discuss any aspect of your financial planning and you have an Arch adviser, then please contact him or her, otherwise email direct@arch-fp.co.uk or telephone 01483 204600.

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Arch Financial Planning Limited

Head Office & Registered Office: Caswall House, 6 Wharf Street, Godalming, Surrey GU7 1NN
Tel: 01483 527278, Fax: 01483 527279

Administration Office: Arch House, Collins Court, 39 High Street, Cranleigh, Surrey GU6 8AS
Tel: 01483 204600, Fax: 01483 204611

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