Why is the small IFA being consigned to history? According to CP121, it is because his means of remuneration, commission, is a commercial “distortion”.
This rationale comes from a regulator responsible for the grossest commercial distortion of all time, namely the substitution of the ancient marketplace watchwords “buyer beware” with the new “seller beware”.
This is not merely a distortion of commercial process but a perversion of it. The transfer of the buyer's responsibility on to the seller threw up immediate absurdities that have been with us for so long that we now, perhaps, regard them with less astonishment than we should.
Think, for instance, of the five-page illustrations, of the key features documents, of the hard disclosure of even indemnified commission, of the caveats gabbled at the end of commercial broadcasts or scrambled at the foot of billboards, of the reams of compliance paperwork
Did we imagine that by accepting these absurdities and learning to live with them, everything else would continue as before? As CP121 demonstrates, a perverted world will evolve perversely.
As IFAs, we have acted on behalf of clients for whom financial products are commodities as unavoidable as food and coffins. Our function has been to select the most suitable products for them from an industry to which we were not ourselves tied.
The true “point of sale” has therefore been positioned between ourselves and the insurance companies seeking to persuade us of their products' worth.
The industry has not always understood this – quota-driven broker reps still arrive beaming at my office door possessed of the wholly mistaken notion that we are on the same side – we are not. On behalf of my clients I have not been an easy customer.
I recall that in a brief spell as a tied agent I was forbidden, on pain of termination, to assist in making a complaint against the company I was tied to. Since becoming an IFA I have quite often had to assist clients in this way.
The companies to whom I entrust business this year may turn out to be next year's disaster. At the moment I am not tied to any of them. Next year, if I wish to continue servicing my clients I may be tied to all of them. And no doubt if my clients have legitimate complaints I shall be forbidden to assist them.
Why is this happening? Because, in our seller-beware marketplace the key relationship – the point of sale – now exists between the insurance company and the state-appointed regulator.
It is the regulator who must be convinced of a product's worth. What an easy customer to satisfy – this Government placeman who never samples the company's service levels, or its reliability, or the accuracy and promptness of its administration.
This is why companies like Norwich Union and that once-prolific provider of endowment policies, Legal & General, now stack their shelves with state-approved products, Catmarked Isas, stakeholder pensions, while at the same time providing execrable levels of service which in an unperverted marketplace would see them shunned and despised.
This is why Tony Kempster at Prudential burbles on about commission-free pensions as the new model – without so much as a shame-faced wave of farewell to his previous customer – the IFA.
Why worry about obtaining a recommendation from an IFA when you have the word stakeholder posturing as “state-approved”, stamped all over your risk warnings.
Yes, commission has gone from the new model pension but, as Steve Bee has pointed out, while redesigning your key features document should there not also be a mention of the Chancellor's hand in the kitty?
Does it really matter though if the small IFA is to be excluded from the marketplace? If state-approved products are to be distributed by a handful of large companies what need will the consumer have for an adviser or a voice to articulate his complaints?
How indeed can he have any complaints? With a state-appointed regulator what could possibly go wrong?
A month ago, I obtained a new client – a partially sighted pensioner for whom English is a second language. In May 2000, an Equitable Life “advi-ser” had recommended that he invest £20,000 in an Equitable with-profits bond. At that time, Equitable had already lost its GAR case in the Appeal Court.
The adviser assured the client that the problems at Equitable affected only GAR pension policyholders and that his money would be safe. His bond's value has, of course, since been slashed.
I suggested to the client that we should complain about the sale of the policy. Here is the final paragraph of the response:
“As your complaint falls within the scope of a GAR-related claim as covered by the Scheme defined in the Scheme Circular your claim has now been compromised by the Scheme and we will be taking further regarding your complaint and you are not entitled to pursue this complaint through the Financial Ombudsman Service, the Society's regulator, the Financial Services Authority or the legal system.”
Now read it again aloud -as I had to do for my client.
Park House Financial Services, Tatfield, Surrey