This latest comment from a fee-based IFA suggests consumers will be confused, rather than enlightened by the raft of FSA regulations hitting the financial services sector.
I am rarely moved to write to the trade press, but CP04/03 has finally given me the inspiration I needed. The FSA seem to really believe that they are doing the consumer a favour with the menu system. However, in the long run, this will do nothing to enhance client interests. Products have to be distributed and this will only be done if the distributors (like IFAs) can actually make a profit from doing so.
The latest changes will simply serve to confuse the public further and leave them suspicious of their advisers. Any financial adviser with above average ability, experience and qualifications will rightly charge above-average fees reflecting the quality of advice given. He will also wish to leave some leeway in the maximum commissions/fees chargeable to ensure that more complex cases can be handled economically. However, the IDD is brilliantly structured to make such advisers look very expensive compared to "the average".
I have been charging fees now for over eight years and, in my experience, my clients having a pretty good idea as to whether they are getting good value for money. Some work is carried out on a flat rate, some is hourly rated and in some cases commission is offset against fees that would otherwise have been chargeable.
Sounds a bit like a "menu" doesn't it? That's because it is - and we didn't have to spend millions of pounds to implement it. The client is made fully aware of all earnings and how the advice is paid for by proper application of the existing disclosure requirements. So, for this firm at least, the new menu system will simply add another three pages to the extensive range of highly concise regulatory disclosures we already have to provide.
I can't help thinking that the main beneficiaries of all this will be the Customs & Excise (VAT on fees) and the regulators whose salaries we effectively pay to come up with and implement this burgeoning bureaucracy.
Those who are less well informed about financial matters and really would benefit from sound financial advice will increasingly be priced out of the advice market and left to learn by their own mistakes. And as distribution costs rise and profits fall, and advice becomes focused on wealthier clients, who exactly is going to solve the government’s pension crisis? If the government really wanted to do this, they could achieve a lot more by stopping the massive annual tax burden on pension schemes - it makes the cost of advice by a good IFA look pretty good value.
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