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Back to basic

A few weeks ago, in the wake of my column on the issue of whether Skandia ought to be allowed to join Aifa, I got two emails. One was from the redoubtable Harry Katz, at Norwest Consultants, who took me to task for my negative comment and said Skandia has merely joined Aifa an “associate member”.

This, he points out, is not as big a deal as I (and just about every other industry commentator) thought. Aifa has over a dozen other life offices and fund management groups in this category. They get no votes and no council representation. Skandia has paid the standard associate membership fee of £15,000, not a big deal given that Aifa’s total budget is £1.5m.

All of which is fair enough and only begs the question as to why if all Skandia was doing was seeking to emulate a dozen providers that have gone before, it made such a big song and dance about its new-found conversion to Aifa.

The second letter I got was from the ABI, expressing the fervent hope that they might be able to persuade me at some future stage as to why assisted purchase is such a marvellous idea whose time has come. Sadly, I fear that hell will freeze over before I reach that conclusion.

To understand why, it is necessary to go back in time. The reality is that in the past five years, both the ABI and the FSA have tried to breathe life into a variety of incarnations of assisted purchase. All of them have turned out to be dismal failures.

In 2003, it was the FSA’s turn to promote a simplified sales process, when researching how best to implement Ron Sandler’s stakeholder proposals. The aim back then was to use a series of questions that would filter prospective customers, thus allowing relatively unqualified salespeople to decide whether a stakeholder-type product might be suitable for them and, if so, which one.

Both in respect of the lower qualifications for salespeople and the filtering and decision trees approach, assisted purchase is identical to the FSA’s proposals five years earlier.

Integral to the process back then was the fact that consumers would have little or no comeback to the regulator or the FOS in the event of misselling. Although the ABI’s response to the RDR in January 2008 does not mention the issue, a massive reduction in regulatory oversight is clearly a pre-condition for assisted purchase to be attractive to its members.

The problem for the FSA in 2003 was that when it carried out research into how this approach might work, it became obvious that it did not. The FSA claimed “80 per cent of the outcomes from the filter process were either consistent with a recommendation made by a qualified adviser or otherwise ‘reasonable'”.

In addition, “81 per cent who had received advice before thought this process was the same as or better than the advice process they’d gone through before.”

If so, one could only feel sorry for the poor consumers who roadtested filtered advice because their previous advisers must have been shockingly bad.

When the filtered advice was reviewed by a panel of experts, it found that more than 25 per cent of recommendations to take out a stakeholder pension were to people who were already members of a company pension scheme or would be able to join their employer’s scheme at a later date.

Almost half the filtered advice was “unacceptable” for a range of reasons, including incompatibility with attitudes to risk or the respondents’ financial situation and objectives.

Subsequent research a year later, with a revamped questionnaire, found the sample questions produced two contradictory effects.

First, lots of people were screened out inappropriately and were unable buy anything, regardless of whether they needed it. Second, among the handful of potential clients still left after this bizarre screening process, there was still a high chance – as high as 20 per cent in some cases – that they might be wrongly recommended a product. Hardly surprisingly, the FSA’s proposals bit the dust.

Not that this prevented the ABI in 2005 from backing yet another plan to sell basic products to less well- off consumers without inquiring into their overall financial needs.

Because the less well-off that this proposal was aimed at did not have much money, certainly not enough to pay for decent advice, the best way to deal with this dilemma, in the ABI’s opinion, was to give them Gerald Ratner-quality advice to match their Ratner-quality products.

The basic advice regime would be carried through by means of a basic questionnaire taking 20 minutes of an unqualified advisers’ time. Unsurprisingly, that proposal died a death too, a victim of near-total lack of interest from the ABI’s members.

Three years later, the ABI is once more attempting to resurrect the concept of basic advice by giving it a new name, assisted purchase, now involving a 30-minute questionnaire in place of the old 20 minutes originally proposed.

Someone ought to tell the good people of Gresham Street that, in the immortal words of Barack Obama, no matter how much lipstick you put on a pig – at the end of the day it’s still a pig. And like a pig, this latest proposal won’t fly either.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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