As readers will no doubt be aware, there has been growing speculation
recently about the possibility of financial advice becoming kitemarked.
My view is that IFAs are really independent financial designers, a bit
like a financial services version of Changing Rooms. Should financial
products be kitemarked like tins of paint or different types of timber? “It
does exactly what it says on the tin” could become “It does exactly what
the kite standard tells it to.”
We understand that the British Standards Institution is setting up a new
technical committee to shadow the International Standards Organisation.
What benefits, if any, could kitemarking bring and to whom? Well let us
begin by looking at the objectives behind providing financial adv-ice in
the first place. Why do people want advice?
Probably because they are unsure of what to do and want the benefit of
professional guidance, people are looking for the most suitable set of
financial solutions for them. I am not alone in arguing this is best
provided by properly trained, qualified and regulated advisers.
What place then for kitemarking? Why have it? As I understand it, the
proposal is that a “standard” would apply to the whole financial process,
including information taken from the consumer (fact-finding) and
information given to him or her – for example, key features, illustrations,
maybe decision trees, etc.
So who would decide what such a standard should be and what financial
products it should relate to? Will this be regulated and unregulated
products? Would we have an international standard and would this be right
for the UK financial services marketplace?
I can see similar standards may apply to the quality of a Diet Coke in
Japan, Europe or the US but to financial services worldwide? Surely, this
would be nigh on impossible given the differences between countries,
cultures and legislation and in how financial services are distributed.
Leaving aside the international dimension, any proposal to kitemark
financial advice in the UK would be to threaten to replace the
professionalism of the financial adviser with a lesser, and potentially
more confusing, system to the consumer.
If the proposal were to kitemark financial products then you are instantly
faced with a number of complexities.
There is a wealth of data which can measure such things as charging
structures and their effect upon the consumer in terms of reduction in
yield, projected funds, early transfer values, etc.
There are also different ways of computing the financial strength of an
organisation and how certain product features are dealt with, such as how
certain illnesses and disabilities are defined, all of which in theory are
capable of being standardised. But there is much that is not.
For example, the skills and flair of a particular fund manager, the
relative likelihood or prospects of good fund performance in the future,
the understanding of how not one, but a range of products, may fit in to
the design of the best financial solution for the consumer.
On the one hand, this may be useful in informing both advisers and
consumers that a product had met certain standards in certain areas. But
it could easily lead consumers who do not seek advice to make the wrong
They could choose an inexpensive kitemarked fund management company, when
a more expensive but far better performing alternative could have been
Is cheapest best or do you get what you pay for? “Does it do exactly what
it says on the tin?” And, if what is potentially being proposed were to
include the provision of information only (as opposed to advice) then the
question arises whether an untrained person should be allowed to “inform”
the consumer in this way.
Furthermore, if this were to be permitted, would it be limited to
non-regulated products only or would it also encompass regulated products?
Presumably both. If so, what place then for regulation and advice?
Surely it would not be proposed that kitemarking should replace regulation
and advice? But if not, how exactly is it going to assist that process?
Possibly only by addingto the compliance burden on IFAs at the same time
as amplifying the potential for consumers not to seek advice and end up
Maybe a better proposition would be for Government, regulator, product
provider, consumer watchdogs and advisers to do everything possible to
encourage the consumer to seek financial advice from a properly qualified
person, who was required to provide suitable advice after the benefit of a
carefully conducted fact-find and comprehensive research – how about making
that the standard?
Oh sorry, we already have and rightly so. Let's not do anything to