markets & strategies
UK-based intermediaries will have an opportunity to show real added value to their clients if the simplistic Treasury proposals on investment are pushed through.
This opportunity comes because in order to make investment advice straightforward, rules of thumb have been proposed that ignore some basic investment facts, according to Scottish Life International (SLI).
"With this background, it is understandable that pragmatic compromises need to be made in the design of the products," said Neil Lovatt, director of marketing development for SLI.
"However, these compromises highlight the differences between these simplified products and the tailored service intermediaries can provide. Clearly this gives intermediaries the opportunity to show how their advice adds real value."
For example, proposed rules on the UK's new 'stakeholder' products suggest an equity exposure of 100% is appropriate for a time scale of more than 10 years - between five and 10 years, this should drop to 50%.
But a recent report by PricewaterhouseCoopers for the UK's financial services regulator (the FSA) stressed "volatility of the value of the investment most definitely does not fall [over time]."
Lovatt said: "The FSA report supports our own research that there is no reduction in the risk of the stock market as the length of the term increases. The Treasury proposals have had to compromise in offering one-size-fits-all products."
And this is where intermediaries can show their worth. The more prescribed the investment parameters on generic products, the more potentially valuable bespoke financial advice will be.
"A simple glance at the Treasury proposals will lead many to believe investors would be safe investing the stock market for terms of greater than 10 years," said Lovatt.
"Given Tony Blair's recent Far East tour, he may be advised to seek the opinion of Japanese investors who probably never believed the stock market could fall over a decade."
According to Lovatt, intermediaries should not categorise investments into classes, but rather advise clients according to their needs.
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