Competition authorities could still take a negative view of the proposed menu system involving a single market average reference price for any particular service, says Paul Smee, director general of the Association of IFAs.
Although the menu's average prices are proposed to be set by the FSA on the basis of information from the market – effectively relying on the market itself to provide the single reference prices - the FSA's pricing action may still be seen by competition authorities as an issue.
The problem is not the ability of advisers to charge a maximum price against such an average price under the proposed menu regime, but the fact average prices would be determined by the regulator.
Smee says any action is unlikely to take place until after the regime is implemented and authorities are in a position to see how the menu works in practice.
Smee has also reminded advisers and others this morning attending a conference organised by technology and services consultant Practiv - The Future of Financial Services - that IFAs face a "watershed period for distribution," although "it is not something that fills me with horror".
"IFAs are entrepreneurial, skilled and adaptable," he says, noting that their extinction has been predicted many times in the past, for example, over the issue of pensions mis-selling.
Consolidation is taking place, but that will not last forever, he warns. Success will depend on drawing in support services in areas such as technology compliance and research.
”Otherwise, I don’t thing they’ll be able to survive cost-effectively," says Smee.
"The days of running a business out of a back room from a shoebox are over."
Speaking of the various distribution channel options opened by depolarisation such as tied, distributor, and whole of market statuses, Smee also says it is theoretically possible to be one or all of these under the new regime.
IFAs will have to grapple with the multi-status issue because existing clients will want to know why recommendations for particular providers have changed given previous recommendations.
This may force advisers to, for example, offer distributor-plus-other status in order to meet demands of existing clients.
Part of surviving will be down to judging when not to take on board clients who are simply focused on prices rather than service levels provided, he adds.
”I would tell IFAs if a client is focused on cost not the standard of service, it’s worthwhile wondering whether it’s worth taking on that client.
”If you get a client looking at the menu saying, ‘gosh, look at that cost’, rather than looking at the services provided, the adviser should wonder about that client,” he adds.
Smee does not expect consumers to actually spend lots of time “shopping around”, if only because of the thought of having to replicate initial interviews.
IFAs also need to do more to point out the value they create and make sure consumers appreciate the amount of time spent on issues such as administration and ensuring policy details held by providers are correct.
In terms of the deadline for implementation of depolarisation, Smee is betting the new rules will come into force by 15 January 2005 – the same date the new general insurance regime starts.
Smee says final rules are likely to be in place by October, although the industry will in any case be in a position to know “by the autumn” when the deadline is.IFAonline
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