So, the FSA have now announced that the menu document will disappear from the end of the year. I don't know if I should laugh with relief or cry about what will follow.
I can’t help thinking that it would have been easier to listen to the massive weight of opinion against the menu document in the first place, instead of putting IFAs through such a lot of work and upheaval, which of course we don’t get paid for and which increases our costs to consumers.
This sort of fiasco is typical of government departments generally, because they have no ownership of their institution they simply have no understanding or empathy for the cost implications of these wonderful ideas, and why should they? They don’t have to pay for them! (unlike SME owners).
It is very interesting to note that the FSA has observed the fact that there is no evidence that the menu document has reduced commission levels generally. Has anybody ever stopped to think that perhaps commission levels might have reached their natural level, and that IFAs cannot afford to reduce commission levels anymore because of the amount of bureaucracy they face.
The simple fact is that the time spent preparing for the menu document, the cost of maintaining it, printing it, ensuring advisers comply with it etc etc etc increases costs and therefore increases minimum fees/commissions.
The FSA has to realise that they are directly responsible for a large amount of commission that clients pay, because it is used by the advising firm to meet the over-burdensome compliance regime.
In a free and liquid market competition drives prices down. All IFA firms need to make profit. The only way to guarantee that commissions will come down is to guarantee that advisers have more productive time in their week to see clients, thus producing more cases, thus spreading the overheads.
Perhaps the FSA should bear this in mind as they look for a replacement to the menu document, in fact they might like to consider replacing it with nothing at all (heaven forbid) and instead set about a simplification and reduction in the compliance regime generally.
Good advisory firms will always try and comply no matter how much paperwork is put in front of them. Non-compliant firms, or bad advisers, don’t care how much compliance there is, because they will just ignore it and carry on doing what they’ve always done! But of course it has to be remembered that the lack of constant change in any regulatory regime ultimately leads to redundancies at the regulator!
Adrian Shandley is managing director, Premier Wealth Management.
The views expressed in this blog are the author's own and not those of the company he represents.
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