New regime prompts financial advisers to demand higher fees

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The Independent Online

Many of Britain's networks of financial advisers are demanding multimillion-pound handouts and vastly increased commission rates from financial services companies, refusing to sell the products of those who will not pay up.

Many of Britain's networks of financial advisers are demanding multimillion-pound handouts and vastly increased commission rates from financial services companies, refusing to sell the products of those who will not pay up.

The Financial Services Authority warned networks last summer they could not demand "inducement fees" unless the money could be directly linked to improvements in their clients' service.

Under the new rules governing financial advice - known as "depolarisation" - which come into force next week, advisers are permitted to channel all their business through a small handful of providers. Although these "panels" are supposed to be chosen on the basis of which companies have the best products, several providers have complained that networks are also selecting their panels on the basis of who will pay the most commission or highest fees.

Several of the largest networks have demanded high seven-figure sums without any immediate justification of how the money will be spent.

Sesame, the largest network and a subsidiary of Misys, has been highlighted by a number of providers as one of the most aggressive bargainers, demanding some of the highest fees.

Charles Bryant, Sesame's commercial director, admits Sesame has accepted payments from providers on its panel but says they will be directly used to improve services for consumers. But he conceded that in early-stage negotiations, Sesame did not specify what the money would be used for. At least two providers walked away from talks as a result.

"I'm pleased to hear that people think we've been driving a hard bargain," Mr Bryant said. "But what providers seem to be implying is that we're lining our pockets - which couldn't be further from the truth."

Several networks are also demanding sizeable increases in commission, particularly on protection products. Financial advisers typically receive about 150 per cent of the first year's premiums when they sell a protection policy. But several firms are now demanding upwards of 200 per cent, telling providers to pass on the cost to consumers if they cannot afford the rises.

Mr Bryant said Sesame had not demanded higher commission but pointed the finger at his rivals.

Mick McAteer of Which?, the consumers' association, said: "We are very worried about depolarisation. It's not clear that the FSA has got enough safeguards in place to manage the conflicts of interest."

One provider said: "We've walked away from a number of deals because the figures just don't stack up. It's really not down to who provides the best products, it's down to who's got the fattest cheque book."

Millfield, another large financial adviser firm, has come under fire for giving all six places on its panel to companies who invested in the business or its subsidiaries. Axa, Friends Provident, Prudential, Scottish Widows and Skandia lent Millfield £15m to help fund its acquisition of Inter Alliance last year, while Norwich Union has a controlling stake in Lifetime, a Millfield subsidiary.

But Paul Tebbutt, Millfield's chief executive, says the panel was selected after a long tender process. He added that Millfield had not accepted fees from any provider. "Our process was audited internally and by the FSA," he said. Although he admitted Millfield negotiated higher commission rates on protection products, Mr Tebbutt said these have been disclosed and are well below rates demanded by some other panels.

In a statement, Dan Waters, the director of retail policy at the FSA, said: "The FSA is aware that providers and distributors are considering a variety of proposals for funding the set-up costs of a number of different business models for depolarised product distribution. When considering these proposals firms should be mindful of the high standards required by the FSA's Conduct of Business rules."

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