Last week’s RDR feedback statement muddied the clear divide between advice and sales that the FSA proposed in its April interim statement.
Aifa director general Chris Cummings accuses the FSA of caving in to pressure from banks and life insurers whose salespeople will be able to call themselves sales advisers.
Cummings says: “We need to rebuild trust in the industry. The FSA should have taken this opportunity to clearly differentiate advice from sales. It has not done this. Sales advice is ambiguous and will further confuse consumers about who they are dealing with. All the consumer groups welcomed the previously proposed split between sales and advice.”
The Financial Services Consumer Panel says sales advice is “devoid of meaning”. Chairman Lord David Lipsey told the audience at the FSA’s RDR conference in London last week that consumers will be extremely confused by a sales advice channel. Lipsey resigned as chairman on Friday although the FSA said the move had nothing to do with his stance on the RDRInvestment Management Association authorised funds and tax director Julie Patterson says: “We remain concerned whether consumers will understand sales advice. It is important that any new standards or restrictions should be embedded in rules, that those rules apply to all sectors and apply appropriately to firms that are providers, distributors or both.”
The FSA claims it was prevented from dropping the term “advice” for tied agents because of Mifid restrictions designed for European banks which want to continue to use the advice label.
Lipsey says: “If what the FSA says about Mifid is true, then it seems this nonsense language will have to be allowed.”
Cummings says a full review of the term “advice” is needed at a European level.
Syndaxi Financial Planning managing director Robert Reid says: “To have this fudge between sales and advice is crazy. Is the FSA honestly expecting the public to swot up on all the different types of advice and sales? Having already established that the public are not financially literate, believing they will be able to determine the difference between the categories is ridiculous.”
Compliance consultant Adam Samuel says the FSA has not indicated how the non-independent sector will be required to make it clear that they are offering a sales advisory service and not an independent one.
He says: “That is fundamental to the proposals. Will the FSA clamp down on wealth management firms such as St James’s Place and Barclays? Will they be required to say prominently that it is a sales advisory process and not independent?”
But Informed Choice joint managing director Martin Bamford does not see an issue with sales advice. He says: “I do not think consumers will understand the different channels any more or less than they do under the current regime. It would have been nicer if the split had been clearer but as long as sales advisers have to fully disclose the limitations of what they can offer, it should be clear enough to consumers.”
Highclere Financial Services partner Alan Lakey says: “I have always argued that sales and advice are inextricably linked. Most people who come to me have problems that are resolved by buying a product. Even banks are giving advice.”
But Lakey does have issues with the three categories within sales advice.
Sales will be split into three categories. Non-independent advice refers to tied and multi-tied advisers who are offering full advice services from a limited range of products. Guided sales, previously referred to as primary advice, aims to be a sales process for people with simpler needs but will be available on an advisory or non-advised basis. The third category of other non-advised sales primarily refers to execution-only services.
Lakey says: “This is unnecessarily complicated and was clearly done for the benefit of the banks. Guided sales have no place in the industry. These terms are a nonsense. How the FSA has been hoodwinked into this by the Association of British Insurers and the British Bankers’ Association, I do not know. It is almost like the FSA said to them, go away and design it yourselves.”
The Financial Ombudsman Service has warned that these channels could lead to an increase in the number of cases referred to the FOS.
Principal ombudsman David Thomas told the RDR delegates: “In the middle ground, between full independent advice and execution-only, any lack of clarity about the nature and extent of the service which the business is providing to the consumer has the potential to increase the number of cases referred to the ombudsman service.
“It is not necessary that consumers should understand the regulatory requirements that surround the sales process but it is essential that they should understand the extent to which they can rely on the financial business and the extent to which it is a case of let the buyer beware.”