The retail financial services industry suffers from a number of dysfunctional characteristics which are not apparent in other consumer markets, according to the chief executive of Which? The Concise Oxford Dictionary defines dysfunction as "abnormality or impairment of function". Discuss.
Is the UK financial service industry abnormal compared to say Australia or the States? Unique yes, but not abnormal. The Australians were forced to make pensions compulsory and as we know it’s pay as you go in the States with little state support with huge sales forces dominating distribution.
Is the UK financial services industry better than others? This is a hard question to answer, however we are recognising the importance of the central argument in the Which? comments on the industry – the need to become more consumer facing.
Progress has been made in recent years to change the balance of power between manufacturers, distributors and customers through improved regulation and provision of information - but this is not enough. I would cautiously say that the industry may have something to learn from the Which? comments.
Is there impairment of function? The providers need to get consumers to want and to buy their products and TCF plus education is key to this. Providers also need to educate distributors about their products, remembering that independent financial advisers have over 30,000 financial products to take to the market. The impairment of function, in my mind, is in the gap between manufacturers and distributors.
Providers continue to pay, in my view, criminal levels of commission to secure new business that is actually churned existing business. Providers don’t really listen to distributors (even when they’ve bought them) and distributors - such as IFAs - remain difficult for providers to control. Ever heard of herding cats?
TCF is making the industry focus on the customer and I know we are getting better at giving customers what they want. Which? is correct to say that decoupling advice from sales would go a long way improving the industry. You don’t have to believe Which? but I believe the evidence is clear - consumers want something other than what is being offered.
More than half a million people contact IFA Promotion every year looking for IFAs. Their figures show that 18% of these people want fee-based advice; of the 9,000 IFAs registered on IFAP database only 2% offer a purely fee-based service.
I don’t blame the IFAs that take commission in lieu of fees but, in short, providers are to blame for this coupling of advice and sales through buying business through high indemnified commissions.
Whilst I don’t agree with everything Which? say there is a lot of truth in their message.
Kim North is managing director of Technology and Technical.
The views expressed are those of the author and not those of the company she represents.IFAonline
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