I’m a sucker for news. One of the beauties of reading any newspaper or visiting a newspaper website is the sense of anticipation at what you are likely to find. And if what you read turns out to be stimulating, so much the better.
Which is why, for me at least, last week’s issue of Money Marketing was such a delight. It offered a combination of news and analysis which – if sometimes tangentially – encapsulated many of the issues I believe matter to consumers.
One of those contributions, came from Robert Reid, of Syndaxi Financial Planners, who argued that for far too long the debate over advice and how it is regulated has been dysfunctional, largely because it is focused on product and not planning.
As Rob argues: “We live in a country where savings are for rich people instead of being part of our culture and we need to emphasise advice before product to all.
“The debacle that is the Money Advice Service… focuses too much on product and seems to struggle to reach its target market. All too often, these organisations focus on the messages they recognise and therefore end up talking to themselves, hardly the outcome we need at this time.”
Rob’s conclusion, that what needs to be promoted by the industry is the value of advice, is vitally important. What has been happening for far too long is a disconnect between advisers, as well as fund managers, and their clients.
Another article by Mel Kenny, a chartered financial planner at Radcliffe & Newlands, makes the point beautifully. He describes listening to a fund manager who, while facing a flood of potential redemptions as the performance of his fund appeared to be collapsing, said: “I am cautiously optimistic about future growth.”
As Mel Kenny pointed out: “The problem with the phrase is that it implies the fund manager knows what is going on when really he does not and never did. It is just too dangerous to say, ‘I do not know.’ But that is the truth, the fund manager does not.”
I read Mel’s remarks less than an hour after coming home from afternoon tea with an 85-year-old neighbour, a sprightly chap in full possession of his marbles, who also happens to be an astute investor with his own IFA.
My friend had only just been telling me that he now throws all his annual and six-monthly fund managers’ reports into the bin without reading them because he doesn’t believe they know anything about what is happening to world stockmarkets. “All they do is explain what happened after the event. When I talk to my adviser about it, he doesn’t have a clue either,” my friend said.
If we accept that comments like this reflect the reality for many consumers, although not all, about their relationship with their IFAs, then, to some extent, the issue of the RDR – which so many readers of this column get so exercised about – is a sideshow.
In the coming year, both the Financial Services Consumer Panel and the FSA say they will turning their attention to retirement products and look more closely at “the quality of pensions and retirement planning recommendations”.
I don’t imagine for a second that anyone is quaking in their boots at the thought of the FSCP writing a report or making another set of recommendations that are most likely to be ignored by the regulator. But when the FSA’s director of conduct supervision Clive Adamson says: “The quality of advice and product suitability for pension and retirement planning becomes of significant regulatory concern and interest,” the picture changes.
What we are talking about is expectations as to how IFAs should behave vis-à-vis their clients are changing – and it won’t be enough to say that “we know all about it and already do this” when the regulator comes calling.
For example, it is right for advisers to criticise Nest’s decision not to develop a riskprofiling tool for members. As Money Marketing reported last week, Nest head of investment policy Paul Todd says: “Nest has taken the decision that at this time it is not a priority to develop a risk-profiling tool.”
But if it’s important enough for Nest, then what is wrong with all IFAs using a riskprofiling tool with their own as well? I suspect many still don’t do it.
Moreover, risk-profiling is not something that remains static. It changes over periods of time, for example when a goal is reached, or if there are doubts as to whether it can be reached without a change in attitude towards risk.
It also changes at times of market uncertainty – the cold reality of a 30 per cent drop in the value of one’s pension pot tends to hold more meaning than simply accepting there is a “risk” it might happen. That means risk-profiling ought to be an annual event. All these points beg the wider question – when will IFAs move their primary business orientation from product sales to holistic financial planning? I believe many are, but many others have failed to grasp the nettle. As the RDR comes into force and beds in over the next 12 months, they will discover whether it was a mistake or not.
Nic Cicutti can be contacted at firstname.lastname@example.org