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Ahead of the game

The ground rules are being mapped out for investment and pension advice but mortgage and protection advisers are still in limbo as to whether – in the case of mortgages – and how – in the case of protection – the retail distribution review will affect advice, giving rise to concerns.

The regulator is concerned that advisers will switch from investment to protection advice, avoiding the need for further qualification. Such worries are well-founded. Recent regulatory changes resulted in a huge exodus from full financial planning to the then unregulated, and therefore easier, mortgage market.

The mortgage sector was so buoyant that it masked the quality of the advisers – many of them were little more than salespeople or glorified admin assistants, processing applications rather than providing advice. The combination of M-Day and the downturn in the market has just about chased out the last remaining cowboys giving the mortgage industry a solid platform to build on.

Protection advice – like mortgage advice – is a specialist area. It would be a shame if regulatory reform of investment markets resulted in another generation of advisers seeking the “easy” option.

There is also concern that the market will be distorted by commission-chasing advisers recommending protection products over investments. A client seeking investment advice that ends up with a protection policy has not necessarily been missold. With too few advisers equipped to talk about the consequences of death and disease, advice given could well reflect a true assessment of that client’s needs. It would be interesting to see the risk assessment of the client that ends up with an unnecessary term plan instead of a bond, given the likely circumstances of the policy paying out.

Friends Provident chief executive Trevor Matthews could not have put it better when he said: “In the light of the well known and huge protection gap in the UK, this concern may be overstated.”

There is the fear that many protection and mortgage advisers will do nothing until the read-across actually happens. The FSA will not give the final picture until 2010 but it is inconceivable that, having expanded its remit to encompass so many new product categories, the FSA would consider employing different regulatory regimes for different categories, confusing both clients and advisers.

IFAs already reviewing changes to qualifications, charging clients for advice irrespective of the product or provider selected, capital adequacy and disclosure, already face a challenging timescale. But our own experience suggests that major system changes, training and restructuring will take twice the time and double the cost.

However, we do have an opportunity to get ahead of the game. The RDR has not wavered from the usual suspects of commission, disclosure, qualification and consumer protection. It will inevitably impact on your business, and we need to work to deliver the spirit of the RDR, which is a better service for consumers, rather than enforced change for change’s sake.

Gerry O’Brien is chief executive of Home of Choice

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