FSA cautions on platform shareholdings

Shareholdings in Wraps

I am unhappy about the FSA employees bonuses e.g Hector Sants and the " Conflict of Interest between a " regulator " and the regulated. How can a regulator be paid a commission/bonus for work over and above his salary as an employee of the Government and therefore the taxpayer ?

Posted by: Ian Lees

Dangerously off the mark

If the FSA would kindly tell us where they believe the 'product' to lie that we arrange and service on Platforms generally this would go a long way to understanding this remark from the FSA. If the product is where the client's money ends up, Nucleus is a facilitator and not a provider. It really isn't the business of the FSA to concern itself with these commercial aspects of IFA businesses in any case. A business is quite entitled to make a decision that an IFA owned and influenced Platform is the most suitable for it. I believe that it is the best choice for my firm: the development of a Platform driven by its users is a more satisfactory model for good client outcomes in the long run, than is using someone else's system.

Posted by: snooks

If Only!

@Ian lees If only Hector Sants was a governnment employee and a cost to the taxpayer! He costs the government and the taxpayer zilch! He is employed by a private company that has been delegated excessive power by the government. You are paying his salary and 'performance' bonus!!

Posted by: Green Eyed Monster

Are they missing the point

There is clearly a need to avoid conflicts of interest, but if all the charges are fully transparent (surely part of RDR) and an honest evaluation is made of a client's requirements, why would a minority shareholding in a WRAP platform be any more of an issue than in any other situation? Many advisers are using WRAPS not as a cunning way of hiding secret backhanders but to boost efficiency. We utilise WRAPS as a third party administration platform. If the FSA doesn't see a problem in firms employing staff for administration why would NOT fully owning the third party administrator be an extra cause for concern? If the report here is accurate, the FSA's stance seems at best illogical and inconsistent. When it comes to conflicts of interest and misuse of statistics, companies with the word "bank" in their name and regulators with three letter acronyms might like to start getting their own houses in order first, before they cause any more damage to the consumer.

Posted by: Michael Both

Oh Dear, Oh dear.

This again illustrates the epic ignorance of all central planning bureaucracies like the Failed FSA, blinded by their own limited information and arrogance. Wraps, are materially different to 'providers'. At their very best they operate as seamless administration systems for IFA's and their clients. For example would the Failed FSA hold that an investment management company using only Pershing's system, or even owning shares in Pershing, was compromised? No, of course it wouldn't. Dear God! How did we get into this mess letting these clowns run all our lives - and I don't mean IFA's - I mean the whole of the UK population.

Posted by: Steven Farrall

To what extent......

does the same principle apply to the banks ownership of insurers or investment houses? The consumer detriment is surely potentially much much higher there.

Posted by: TonyC

Nucleus

The FSA don't seem to be very well informed. This has been Nucleus' offering from the start. It's not like they are going to stop IFA's using Nucleus; they are just going to pay them the extra attention that they would with any conflicts of interest. i.e. Has the conflict been noted, is it described in the IFA's Client Agreement and are they showing bias towards the platform at the cost of the client. Nucleus is an excellent platform so I don't see it causing the FSA any problems. However, things change and if the platform later become less competitive, the FSA would have to watch very carefully that shareholders didn't forget their clients interests for their own.

Posted by: MarkG

Strange?

If I own a few shares in Aviva or any life company (either directly or though my pension fund holdings) do I have to tell my clients that there may be a "conflict of interest". I haven't so far! If an IFA has a robust, documented method of selecting platforms and wraps, reviews this process regularly and can prove the advice is sound, the FSA would be better served turning its attention elsewhere. If an IFA acts differently then that IFA deserves an FSA investigation.

Posted by: Ken Hayden

The FSA are spot on

Am I the only IFA reading this that fully supports the FSA on this issue? Do any of the other IFAs reading this article remember what the definition of Independent means? I would question the impartiality of the adviser/their firm owning shares in the platform (or any fund provider). Do they really believe Nucleus is either the best or the cheapest wrap in the market? Do they fully explain to clients that they hold shares in the wrap? If you have to buy shares in Nucleus in order to use them, with the dividends on these shares being linked to the adviser firm's assets under management then surely by definition this creates a massive conflict of interest. Which I doubt is ever fully explained to the client, and more important fully understood by the client.

Posted by: Scott

Come, come.

I wonder if some respondents are being purposely obtuse. It seems perfectly clear to me and I don’t really need the FSA to point it out. Anyway I wonder how many of these ‘John Lewis’ platforms will be around this time next year. After RDR there will be little (apart from price) to differentiate wraps/platforms and I wouldn’t be at all surprised if we see acquisitions and consolidation. In which case those advisers who own shares are hardly likely to hold on to them if they get a lucrative offer. I see the RDR solving that particular issue before long – via unintended consequences.

Posted by: Harry Katz

Life Office interests in Networks

Do the FSA apply the same test when considering the financial interests which some Life Offices have in Networks and make any checks whether business is disproportionately directed to the Companies which own shares in the Networks?

Posted by: Dave Prior

The Elephant in the corner

I have been a long time advocate of 'Distributor Influenced Wrap' as the best way of expressing the point that a wrap is just a delivery mechanism for the IFA business proposition and of necessity must be closely aligned with that business proposition. The whole arrangement is thus far removed from the and somewhat adversarial provider/adviser arrangement of old, i.e. pre 2000. However, the 'Elephant in the corner' is that the legislation which empowers the FSA and the drives all the rules is so rooted in that old way of business that it simply doesn't recognise any other way and couldn't without being completely rewritten. Maybe that would have been a better way than RDR of expending so much time and energy in creating necessary reform. The FSA is simply reminding the industry of the 'law' on this subject. The response from the industry should be an increasingly loud demand that this antiquated 1980's legislation be urgently reformed so as to be fit for purpose in 21st Century conditions.

Posted by: Stanley Kirk

Moral Hypocrisy

There is a conflict of interest, but I would suggest that it is extremely small. Nucleus is tool that is used to provide client services. If it is good it will be used; if it is not it will not be used. If it is good why should IFAs not buy into it. Controls are simple. No IFA can buy an interest that would provide a level of influence; a statement of conflict of interest is provided to clients; FSA monitor Nucleus usage of each shareholding IFA (notification to the FSA being compulsory). Why do the FSA have to turn every issued into WWIII? Could there be a conflict of interest arising as their bonuses are influenced by the fines they bring in? The process smacks of hypocritical moral rectitude.

Posted by: Glen McKeown

A bit slow on the uptake..

...but they got there in the end. And there's more..

Posted by: Dave Ja Vu

naive

years ago accountants used to be expected to take a financial stake in the companies they audited to show their commitment. this was outlawed over time. it is really hard to see the platform ownership issue being allowed to continue

Posted by: jp

When is a conflict of interest not a conflict of interest?

I am a Director in my own firm and therefore own shares. I recommend a Client uses our firm. A conflict of interest? I privately own shares in AVIVA via my pension plan and recommend an AVIVA policy. A conflict of interest?

Posted by: Richard Hardy