In reviewing the 10 proposals, I would hesitate to say that the author was intellectually challenged but I would not hesitate for long. Taking the points in order:
Proposal one. I am quite sure that they want suitability requirements to be reformed so that they can resume selling the sort of rubbish they used to in the past and that regulation has taken 20 years to ensure that they no longer do so.
It is illuminating to see that they wish the current presumption of the basic advice regime to be addressed and they particularly refer to the presumption that those with debt should not begin to save. Presumably, they think that an investment return of 4 per cent is better than paying interest at 6 per cent which is out of tax-paid income and which therefore is equival-ent to a real cost of almost 7.7 per cent. If they don’t consider debt to be important, perhaps they would like to comment on why IVA figures for quarter one in 2007 were up by nearly 50 per cent on the equivalent period last year.
The current basic advice regime could be fairly referred to as a “dumbed down” charter. It seems that this is not dumb enough for the ABI and they want it further simplified.
Proposal two. This covers the basic advice regime again, wanting it to be widened. I realise the intellectual failings of the man on the Clapham Omnibus but why not attempt to raise the game rather than lowering the bar? Although I would not disagree that consumers are really getting too much paper anyway.
Proposal three. This seems no less outrageous than the rest. They want everything concentrated on the cost of our services, presumably to take their eye off the ball of the cost of their services. The matter of trail commission is stated in the documentation presented to the client at outset and can therefore be assumed to be agreed and is presumably covered by the law of contract. How they can possibly seek to justify one disclosure regime for us and another for them is a feat of mental gymnastics.
Proposal four. First of all, unscrupulous clients will avail themselves of this wonderful get-out and as I said in my previous submission, if the general public then thinks they are going to get fair value from an insurance company in lieu, then they are not living in the same world as the rest of us.
It is not too difficult a hurdle to tell clients at outset that for the simple privilege of having dealt with an intermediary there is an annual charge which can be taken from the product or paid for directly. Why is this any different from a fund manager of a poorly-performing fund who not only, it can be argued, does very little but actually can lose the client money?
I think that proposal four would be a lot more acceptable if the providers then agree not to charge a fund management charge unless they at least equal a suitable pre-determined benchmark.
Proposal five. Why shouldn’t the charges vary for any given product by the provider chosen? Some providers have absolutely abysmal service and provide very sketchy documentation and others have better standards.
Some providers have a good website where valuations can be accessed immediately, others have yet to join the 21st Century. Again, this has the whiff of rank hypocrisy. Do all providers levy the same charges for their products? I think not. How they can then even put forward such a proposal beggars belief.
Of course, there is provider bias because not all prov-iders have equal standards or quality.
Differential pricing will soon send a message to customers as to which companies are worth dealing with. It may even raise standards – and heaven (and IFAs) knows that there is plenty of room for improvement.
Proposal six. This proposal is so outrageous I can hardly get my head round it. What it seems to say is that there should be regulation to prevent providers (presumably non-ABI members) from paying commission. This seems to imply that tied advisers should be permitted to be remunerated by commission. We might not be great fans of the FSA but I really cannot see them falling for this.
Provided that what is paid and received is made transparent and without ambiguity, I cannot see why there is so much debate on the subject of commission. Do they propose to stop stockbrokers taking commission? If so, ABI member fund managers are going to find it a bit difficult to buy stock for the funds that they provide. What would the OFT have to say about this? As far as I am aware, the UK is not a command economy and we are still members of capitalist society.
Proposal seven. Apart from asking the obvious question, what business is capital adequacy of theirs? We have a regulator that is perfectly capable of deciding the levels of capital adequacy for intermediaries – one has to guess at why they are even raising this point. The only conclusion one can come to is that they hope to decimate the ranks of financial advisers which they now decide are an untenable thorn in their side.
Proposal eight. It is difficult to argue against and I will not even try but I would say that perhaps the providers also need to have staff who are equally well trained and understand the products as well as those who distribute them – that would make a really refreshing change and help everybody all round. The current levels of financial literacy and technical and product knowledge in the average provider sales office/ telephone contact centre is lamentable.
Proposal nine. Surely the FSA, as an independent regulator, is perfectly capable of working out measures to regulate intermediaries without the so-called support of industry which I take to mean ABI members. Again, much as we may rail against the FSA, I cannot think of a single ABI member whose standards come even halfway up to those of the regulator. The very idea of recruiting life offices as ex-officio traffic wardens is as ludicrous as it is spine-chilling.
Proposal 10. Of course it follows neatly on from nine as they want the power to tell us what to do. I hardly think we need anymore policemen and if we did, I don’t think the inept bunch that the ABI is proposing have either the qualifications, the ability or the suitability to do this job and to even imply that they do speaks an arrogance that is truly monumental.
With regard to the professional bodies, some have already stated that they would prefer not to get involved in this aspect. So what is the ABI proposing? That there is to be compulsory membership of those bodies that are prepared to act as traffic wardens or the corollary – many of us belong to professional organisations that have already stated they would rather not do this – where does this leave them?