Intermediaries wanting to retain their independence will need the support of a strong association or marketing group to help them administer fee-based advice simply and effectively
It is hard to read CP166 without imagining the look of disdain on the face of the author as the words 'firms which wish to continue to hold themselves out as independent' are typed in. Not, you will notice, 'wish to remain independent' or even 'wish to have access to the whole market for their recommendations'.
It could hardly be starker. There is absolutely no doubt that, in the new depolarised world, the whole concept of independent advice is to be consigned to the dustbin of regulatory history. Business as usual with the menu option? I don't think so.
Reading through the consultation paper. You can search in vain for any reference to the quality of advice ' all that matters is the distribution of products, as widely and as freely as possible. There are those that might describe me as a cynic but was this not pretty much the state of affairs before the Financial Services Act came into force in 1986? So if the consumer has been starved of choice, is this the fault of the industry or those that have been charged with its regulation and raising consumer confidence?
One of the potential risks of depolarisation in CP121 was identified as 'a reduction in the size of the IFA sector'. Under the cost benefit analysis in CP166, undertaken by the FSA as part of its statutory obligations, this has ceased to be a concern as research by National Economic Research Associates says this will not happen. In other words, advisers will remain 'independent' and the only change will be the menu system agreed with the client and the option to pay by fees. So it is business as usual then, with the mild irritation of having to discuss fees with new and existing clients.
Well, let's look at the evidence. In CP166 there were responses from the IFA sector to CP121 where 'it was alleged that some consumers could be deluded into believing that they were receiving independent advice from a firm that distributed products for a number of providers'. Apparently, this allegation will be covered with the proposed 'improvements' in disclosure. Nothing to be concerned about, obviously. Nobody will be deluded into thinking that a tied or multi-tied product distributor is offering independent financial advice because they are not allowed to do so in the rules. There may be those reading this article who think that it is a situation that regularly occurs already, before the opening up of avenues of distribution via different product providers.
If this is a confusion in the consumer's mind already ' how can it be removed by product distributors offering a variety of products from different companies, stressing that they are not 'independent'? One of the research findings in CP121 was that consumers generally have a clear understanding of the difference between independent advice and tied advice. The area of confusion before this 'consultation' was in the various types of tied advice ' the only area to be expanded post CP121.
The clear view from the FSA is that independents have never been more than multi-tied product distributors with an unfair and anti-competitive advantage of provider access. If they are so desperate to retain the title 'independent' (the regulator always puts it in inverted commas) then let them ' but anybody can still be called an 'adviser'. Ron Sandler thought that people who sold products on commission should not be graced with that title on the grounds that they are salesmen not advisers. The word adviser attributes qualities of knowledge, experience and client interest entirely absent at the counter in most High Streets. The FSA disagrees.
The regulator is charged with opening up competition, product innovation and consumer access to bridge the 'savings gap' ' real or imaginary. It has in fact been instrumental in destroying consumer confidence and must take much of the blame for the lack of interest in matters financial in a world where the individual is unlikely to have much state help in times of need. Who would have guessed that the FSA in its attempts to raise consumer confidence could have instead let it plummet so low?
While it is true nobody's hands are clean, it is convenient in the extreme for the FSA to blame previous regulatory regimes for their failings, while claiming the gifts of both foresight and hindsight. Sadly, those working in the industry are there to pick up the pieces, reap the whirlwind and take the blame. Power and responsibility should be wedded, not in separate hands.
The real world from 2004 will be one dominated by the big institutions. They now have the brands, the distribution channels, the cross-selling opportunities, the marketing muscle and the national presence. What, by comparison, does the average firm of intermediaries have? Loyal clients? Possibly, although they are increasingly rare.
People feel empowered only as consumers today and the compensation culture is just one manifestation of it. They want the best there is, the cheapest rates, the highest growth, the lowest charges, the best service. It is unlikely the adviser can be seen to deliver this in a world in which margins are relentlessly squeezed.
In a straight fight with a well-resourced multi-tied agent with a household name behind them and access to a huge range of popular and heavily advertised brands, I think the IFA will lose. Which is why they must cull their unprofitable clients and create a value added proposition for what it is they do for a living. The adviser has to advise and not sell products.
Unless the quality IFAs are galvanised into action by re-branding as 'fee-based advisers' and pooling their resources to put a credible defence of their offering, business as usual will seem like a distant dream. There is a window of opportunity this year to change the way you do business that makes your future more secure and more profitable.
If you feel that your firm has a worthwhile business proposition you should definitely join a marketing group or association, not solely funded by providers, to help create the 'clear blue water' between those that wish to continue to hold themselves out as independent and the rest of the market. At Fee Based Advice we believe that, for the chosen few, the future will be very bright indeed.
How you choose to get there will be crucial. Going it alone is no longer an option. To make it as an independent with a proposition capable of winning the confidence of cynical or even fearful consumers will require a well thought out and highly professional solution. You will need the support of a national organisation of like-minded IFAs, providing you with training support for you and your staff, along with access to systems designed to make fee-based operation simple and effective. You will also need the back-up of national marketing and PR to help spread the word about the benefits of fee-based advice. And you will need that now, if you want to be independent tomorrow.
Contact 0121 456 3199.
Nick Peters, director of Fee Based Advice
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