Financial intermediaries argue the FSA menu and the move towards fee-based doesn't fairly reflect the market that the Financial Services Authority regulates.
Rather than offering hourly rates of fee-based advice, many advisers in fact offer a set fee for each piece of work, regardless of the hours invested.
One IFA points out there are a number of proposed changes and anomalies which do not quite tally or contradict the FSA’s aims, so here are just a few of his thoughts on the menu proposals and its various changes.
The FSA says that they want the menu to be "concise" and "short" and yet their example commissions menu is already 3 sides of A4 when the FSA is quoted as saying: "Proposals are designed to give consumers a clear, concise and easy-to-use document. Our consumer research examined consumer understanding of the different payment options and the illustrative cost of advice (alongside the market average) across a range of consumer sophistication. The research showed that the new document was effective in increasing understanding."
The FSA also says recognising that the IDD should include meaningful detail, the focus has been to minimise the volume of information provided and to focus on the key information needs of consumers, by keeping the IDD short and punchy.
But there is still the requirement to provide an Initial Disclosure Document (IDD) and a Terms of Business (TOB) if the IDD is not incorporated into the TOB. But all of this misses the point which is of the greatest concern and interest to consumers (clients) and that is "for whom is the adviser acting as agent?”
If the adviser is not a whole-of-market adviser then surely, by definition, he must be acting as the agent of one or more product providers, selling their products to the client, rather than as the agent of the client who finds the best products in the market for the client. It seems vital that the 'consumer' (sic) understands whether the adviser is going to be acting as his agent or the agent of one or more product providers.
Because of this focus on the client, does it not make sense to change the IDD to include a phrase to the effect that:
- "Your adviser is giving advice from across the whole market and as such is acting as your agent";
- "Your adviser is giving advice on the products of a selection of providers and as such is acting as the agent of those providers", or
- "Your adviser is giving advice on the products of one provider and as such is acting as the agent of that provider".
The FSA’s view of fees seems to be that advisers work like accountants or solicitors, on an hourly rate basis, whereas many existing fee-based advisers work on a set scale of fees for the work completed, charging for a client report and then quoting implementation costs, for each recommendation in that report. This is because they offer holistic financial planning rather than selling products.
The drawback of the hourly fees route has always been the client tends to be reluctant to build a relationship with the adviser as the client fears the bill he will receive every time he picks up the phone to ask for a meeting or some advice. With a set scale of fees there is no fear of this because the client knows, up front, exactly what is available at what cost. The FSA make no mention of monthly, quarterly or annual client retainer fees, which some advisers already adopt.
In my opinion, all these changes will only increase the savings gap and reduce consumer confidence in the financial marketplace. This is because no-one likes change and, as a result, two things will happen:
- Clients will wonder why there is the need for [more] change and will both question whether what they were previously advised to do was the right thing and, if the regulators (who have been around in one form or another for more than two decades) have made mistakes in the past, wonder if they are being properly protected and given the right advice now.
- Even more advisers will leave the profession because they will not want to go through the, real or perceived, changes required. This will mean that there are even fewer advisers to encourage people to save and invest for their future. The true nature of the problem that has been created is that we have not a "savings gap" but a "distribution gap". In the main, people do not save unless they are 'sold' on the idea of so doing and with more consumers (sic) and fewer advisers the problem will become even more acute.
The FSA does not even understand the difference between a regulated and an unregulated firm. I make this statement because the FSA have just upheld my complaint against them for publishing the contact details of an unregulated firm in the regulated firm search section of their website.
Only time will tell whether all this will come to be, but as someone once said "people of integrity expect to be believed and when they are not they let time prove them right".
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