Over the past few months, during our meetings with network and consolidator-linked advice firms, we have noticed a distinct rise in advisers bemoaning the heightened due diligence process required to move away from approved centralised propositions – either in-house offerings or on a panel.
Many advisers trying to divert away from the investment panel find it is like climbing Mount Everest with your hands tied behind your back.
The unfortunate consequence is that advisers suffering from this investment block are calling themselves independent but, in reality, would the client recognise them as such if they knew the strictures they were operating under?
According to the Financial Conduct Authority, if a firm informs a client that it provides independent advice, that firm must assess a sufficient range of relevant products available on the market. These must be sufficiently diverse with regard to their type and issuers or product providers, to ensure that the client’s investment objectives can be suitably met, and not be limited to relevant products issued or provided by the firm itself or by entities having close links with the firm.
The FCA guidance around independence is certainly subject to interpretation, but firms and networks with an in-house offering or an approved panel, while claiming independent status, must offer real, practical access to other options.
In practice, robust due diligence is very challenging and time-consuming, meaning these firms are often pushed to accept the in-house or panel approach without being able to fully research the market.
Research
A key pillar of the FCA’s consumer duty focuses on products and services.
If a firm claims to be independent but is being forced to accept the status quo this severely impacts their ability to say that they are doing what is best for the customer.
Unfortunately for advisers in this position, assessing and researching every single model portfolio or investment proposition is not remotely feasible. Instead, they are entitled to say that they are independent having only reviewed a limited number of offerings to suit their narrative.
Sadly, the loser in this situation is the end-client who has probably chosen their adviser because of their claimed independent status, which stretches the definition.
Clients may be paying up for using the in-house solutions/centralised proposition when better value external solutions are available.
Advisers are generally assured that their network/owner has built a best-in-class solution, but when viewed against others in the market it is often not demonstrably better in terms of either performance or fees.
Smaller one- or two-man firms, tend to be much nimbler. They look at things in an analytical and holistic way. If they see something that offers a more suitable and appropriate solution for their clients, they are likely give clients access to that solution.
Acquisitions pushing the problem
One of the reasons behind the rise of in-house solutions is the large increase in acquisitions with smaller firms often needing to sell in order to survive.
