Bhupinder Anand, managing director Anand Associates
Does the system work today? I don’t believe that it does because I have not seen the rise of multi-tied agents. I would say let’s go back to where we were as opposed to the current de polarisation, that is, the simple position that you are either tied or independent.
The public understood. It was a clear message rather than the current message where people can choose to be tied, multi-tied or independent and then even within one business have three aspects of their business with three different models, you can have your mortgage side independent, you could have your investment business multi-tied and your protection business tied.
I do not believe that clients understand that and I don’t believe that advisers necessarily provide full disclosure when they do that. But certainly the menu system did not assist in doing that.
Ideally, we should go back to polarisation and take elements of what we have now. The ideal situation then would be that people are having to provide at the point of sale one sheet of paper that says for each product area either I am completely independent and can deal with any product provider in the market or I am restricted to or limited to the use of named companies, whatever they are.
Nick Bamford, managing director Informed Choice
I think the IDD/menu was doomed to failure because it attempted to get into a discussion about price – price, mind you, not value – at too early a stage in the process. How can price be determined before it is identified what service is required?
What clients really need is a complete statement of exactly what their adviser is going to do for them and a further clear statement of what it is going to cost them. We achieve this by providing something called an “engagement letter” before we start to do any work for them.
The problem the regulator is faced with is that they are trying to deliver a clear and precise cost message to an unclear proposition. By that I mean that advice and product are in most instances “bundled”. Until advice is separated from product, then the IDD/menu will always be a difficult square to circle.
Those intermediaries with their thinking heads on will recognise that the retail distribution review is going to significantly change the that way we do business. Do not be surprised if we see the reintroduction of the buyer’s guide (remember that?) coupled with a needs statement like the engagement letter I described above.
Amanda Davidson, director, Baigrie Davies
For those cracking a bottle of Champagne at the loss of the menu, I urge caution.
We have found the disclosure documents useful in discussing fees payable and in opening out the discussion about our services.
Clients have appreciated this straightforward approach and welcomed the ability to take home a written document they can refer to.
Without the menu those firms who want to introduce lack of clarity into their charges may be able to do so, obviously subject to future FSA guidance.
Clients should be able to know without any prevarication that they are seeking independent advice. Lack of proper disclosure is unlikely to come from the independent sector. So, again, IFAs will end up disadvantaged.
By all means simplify the menu and for the commission sections can we compare averages with averages or maxima against maxima. The document can be improved.
But a removal of these documents will only lead to consumer confusion and potential detriment as it plays nicely into the hands of those firms whose commercial interests are served by obfuscation and I predict those firms will not be IFAs.
Bruce Wilson, managing director, Helm Godfrey
Following the extraordinary U-turn by the FSA and on considering what documents clients would find helpful in dealing with IFAs I would make the following suggestions. Above all, simplicity and clarity of the statements offered is paramount.
Market research should be carried out to ascertain whether the documents intended to be used are clear and simple and help the client understand what he or she is paying for and what he or she can expect from the service being offered.
Terms of business should be provided which would include:
– Scope of service
– The remuneration basis, whether it be fees or commission
– The status of the adviser, whether he or she is an independent, tied or multi-tied agent, and what each of those statuses mean
– Service levels and standards
– Complaints procedurel Regulatory body
– Compensation schemel Information on the regulated company.
Patrick Gale, chief executive, Sesame
We welcome the change but remain concerned about how we ensure that small firms do not inadvertently break the FSA’s disclosure principles by abandoning the menu and IDD too quickly.
It is incumbent on both the FSA and support service companies to quickly fill this vacuum by ensuring they are replaced by appropriate consumer-facing documents. If that does not happen, then there is the potential for small adviser firms to be left in a very vulnerable position.
For the time being, advisers will need to continue issuing the key facts documents to clients, at least until November 1 when the new conduct of business regime comes into force.
What advisers and consumers need is a simpler and more succinct solution. Depolarisation was supposed to herald a new age of choice and transparency, with the IDD and menu as the centrepiece, to empower the public to take control of their finances.
Any potential long-term solution therefore needs to be tested with consumers and accompanied by a major FSA publicity drive. Helping people to better understand the choices available will in turn build greater trust and enable us to highlight the crucial role that professional financial advice can play in shaping people’s financial future.