Our industry clearly faces numerous changes. Many changes in legislation may have a far wider impact upon the industry than we have appreciated.
Polarisation is in the melting pot. Control of design and marketing of pension business has effectively been hijacked by the Government, assisted by its tools, the FSA, Opra, OFT, etc. The Tory Party, having introduced polarisation in Government and indicated its opposition to reversing changes, has now changed its mind and decided that multi-tied advice may be the way ahead.
The Treasury has sent out signals which seem to indicate that its ideal world would be one of no financial advice, with design, distribution and charging structure of all financial products effectively controlled by the Treasury.
Would it like investments to be made automatically in funds with no human input – presumably two options, UK index trackers or corporate bonds?
Will stakeholder pensions become compulsory? If so, will IFAs even be allowed in future to be involved?
Bearing in mind that Opra has banned any IFA involvement in its website, one could wonder. Bad luck for companies which have always marketed via IFAs. Will they now have to set up their own direct (or multi-tied) salesforce? As IFAs are involved in the majority of occupational schemes,if the future is not for IFA involvement, then we are in for a shake-up.
If only the uncertainties could be resolved.
The Government has made a sham of consultation with the industry while pursuing a path which everyone knows will end in tears, with misbuying of pensions and the consolidation of the industry into a small number of massive companies cutting choice and advice for the consumer.
Control of many of our best-known life insurance companies has fallen to high-street banks. They may decide to control sales via their own high-street outlets.
What does this sea-change tell us? I conclude the following. The big financial institutions have concluded that independent financial advice is what the public want and that trying to condemn it, as the British Institute of Bankers did in August 1999, is a waste of time. Direct salesforces are unaffordable and probably uncontrollable. But how does this equate with the Treasury's agenda to tip the scales against independent advice as opposed to some formula involving multi-tie advisers to be controlled by the companies which they apparently will represent?
The high-street banks want control of the financial services industry.
Surely, the only answer to polarisation is to ensure the only advice is independent advice.
I believe it is inevitable that the trend will be towards more execution-only business, with products supplied by big providers owned by banks. The provision of holistic advice will be the preserve of genuine financial planners who will charge for their service.
Such a regime should be marvellous for IFAs as it has to be quite clear that fees will not sit comfortably with advice which is not independent.
We all know that fees are the ideal way ahead, disconnecting the execution of business transaction from the advice process. Really what we all need to do is to provide for and be paid for being financial planners.
Do the general public want such a regime? The rich minority may even gain.
It is inevitable that financial advice from a financial planner will be equally expensive, freezing out all but the rich, leaving fewer people with suitable life insurance pension and investment advice.
With the stakeholder pension regime overlaying a 40-year-old plethora of political interference agendas, pension planning must have independent advice.
It is generally accepted by experts in the industry that most life insurance should be in trust. How many such policies provided by the direct writers and discount over the phone arrangers have been placed in a suitable trust or at least advice given?
However, it seems that the new fashion among the consumer journalists and anti-advice brigade is that good advice can be sacrificed on the altar of absolute lowest char-ges. A new version of never mind the quality feel the width.
It is very fashionable to emphasise how IFAs have got to go up market and just deal with the seriously rich who might account for, say, up to 10 per cent of the population.
Financial advice should be available to all on grounds of public interest and fairness. If commission goes in its present form, then availability of advice will be marginalised.
There would have to be an up-front fee for the advice payable directly or somehow paid for out of a separate commission process for executing the business.
For those who believe that fees are the way ahead and commission abolished, I challenge them to offer a workable solution which will ens- ure availability of advice on financial products for all regardless of ability to pay for fees at point of advice.
We only have to see what is happening to fees for legal advice, with solicitors often required to bill a certain amount of hours a year, typically at £150 an hour plus VAT. At least commission is free of VAT.
The present structure charging is not perfect but, before destroying it, let us have an open discussion about workable alternatives. Simply to say advice is not necessary is as absurd as claiming that we have no need for the services of solicitors and accountants.
I believe the only process which might work is to apply fees for the advice. Then, all financial products should be quoted to the client free of all commission but with a charging menu available which allows for the adviser's fees to be paid up front out of a commission charge in the product. This is very much as happens now with available rebate of commission to enhance allocation or lower premium.
Some pension providers are happy to arrange commission on any reasonable menu.
The main factor is to achieve a payment for advice separate from the processing of the policy or investment and subsequent ongoing advice. It is also to ensure the remuneration is a directly negotiated transparent arrangement between the adviser and the client.
If a client wants advice only and then to execute the business processing himself with a provider, he can always deal with processing by completing paperwork or online processing on a strict execution-only basis after receiving and paying for the advice.
The best changes come through evolution. Clearly, the evolution will be furthered by the use of modern IT to imp-rove efficiency but the basic structure of the industry which was set up under the Financial Services Act 1988 is sound and has no need for another revolution which ultimately is paid for by the consumer.
Peter French is a partner at Troy French & Partners