The following article is taken from FT Adviser, where Intelligent Partnership was mentioned. Click here to read the original article
More than 20 per cent of advisers who recommended unregulated products have left the industry to become ‘introducers’ for the products’ providers, according to a new report.
The RDR’s ban on commission payments to advisers was a key catalyst for the development, according to alternative investment consultancy firm Intelligent Partnership, which published the report.
Peter Robinson, director of Intelligent Partnership, said: “For various reasons there are advisers who no longer wish to be authorised but have a client book they wish to keep working with on a non-advised basis.
“They can give information on a non-advised basis and will be able to take commission.”
A spokesperson for the FSA said advised and non-advised business would be the subject of the regulator’s first post-RDR thematic review, starting in “the next couple of weeks”, aiming to ensure advisers were not exploiting loopholes to keep claiming commission.
Of Intelligent Partnership’s network of 300 adviser contacts, Mr Robinson said 20-30 per cent had allowed their FSA authorisations to lapse and had become introducers for providers of unregulated products such as niche property investments, timber funds and farmland investments.
The Alternative Investment Report stated that working as an introducer “may be preferable to working as an IFA”.
It added: “Many advisers have decided they no longer want to retain their regulated status in light of the increased obligations the RDR has placed on them. Instead they are choosing to work as introducers for alternative investment products – being paid commission for introducing new investors to the product providers.”
Elsewhere in the report, the authors called for the FSA to provide more clarity on the definitions of “non-mainstream pooled investments” it had outlined in its November consultation paper. The paper proposed a ban on the sale and marketing of unregulated investments to retail investors.
The Intelligent Partnership report stated: “The FSA may argue that these new terms [in the consultation paper] could be applied to many of the alternative investment products in the market [but] as yet it is not clear whether this is an intended or unintended consequence and greater clarity is needed.”
The report also urged providers to help “improve the general perception of the industry” by improving the standards of marketing literature sent to investors.
“The vast majority of product providers do not properly highlight the risks to investors within their promotional literature,” the report said.
In August the FSA proposed a full ban on the sale and marketing of unregulated collective investment schemes, dubbed Ucis, and other “non-mainstream pooled investments”.
Non-advised business to face clampdown
‘Non-advised’ or execution-only business models are forecast to become commonplace in the new commission-free advice world. Research seen by Investment Adviser in October found that adviser-backed execution-only services were set to triple following the RDR as they sought ways to continue to help lower-value clients who could no longer afford a full fee-based advice service.
But the FSA is concerned that some advisers may purport to offer advice when in fact offering execution-only services, and so confusing investors. In addition, current rules allow non-advised businesses to continue to draw commission.
An FSA spokesperson said: “The first of our thematic reviews this year will be looking into whether people are saying they are not giving advice but we have a suspicion that they are. This will be starting in the next couple of weeks and it will certainly be a focus as a follow up to the RDR.”
Advice firms such as Skerritts and Plan Money have launched execution-only services in recent months.