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Clear intentions

Looking back, it is hard to remember a time when the integrity of our industry has been the subject of such intense scrutiny. This comes from our critics, among our peers and, perhaps most significantly, in the eyes of the ever more financially aware consumer. Sometimes, I think this must be how it feels to be an MP.

With this in mind, there can be little doubt that transparency will play a key role in securing our clients’ trust in the future, a fact highlighted recently by the FSA’s retail distribution review and its emphasis on clarity on products and services.

One particular example is adviser-charging. The principle here is that the adviser agrees the cost of advice explicitly with the customer and independently of product selection. This cost can be deducted directly from the plan and must be disclosed to the customer separately.

The communication of transparency brings its own challenges. Historically, disclosure of charges has sometimes been perceived as a barrier to making a sale. Yet arguably, the RDR spotlight on our practices and products means there has never been a better time to focus our clients’ minds on the recent improvement of standards and services across the industry.

We have seen the industry evolve towards greater trans-parency, particularly over the course of this decade. Despite some progress, there is a clear challenge from the FSA that the industry must go further.

In its thematic review of pension switching and publication of a suitability assessment template, the FSA highlighted concerns that customers were being switched to higher-charged products without reasonable justification. This sends a warning that transfers into Sipps are going to be firmly under the regulatory spotlight but the report is helpful in outlining examples of what the FSA sees as good and bad practice.

One example of good practice is comparison of charges of the old and new arrangements, using the reduction in yield as the basis of assessment. This will prove difficult for many Sipps which do not produce RIY figures and where charges will vary (potentially significantly) depending on how the client invests and the frequency of trading.

This brings me on to the FSA’s drive towards better Sipp disclosure. The FSA investigated a sample of Sipp statements last year and concluded that the clarity of disclosure needs to be improved. A challenge has been put to industry bodies to come up with best practice. Again, the objective here is to provide greater transparency to the customer, with no hidden charges. In practice, this is no more difficult than incorporating the ethos of those regulatory challenges into working practices. This means asking those key questions that will help determine the integrity of an offer and transparency of the service provided:

Are the charges for service, investment and adviser payment independent and set out separately? Is there any bias in investment selection? For example, are adviser payments linked in any way to the choice of investment? Does the provider offer full pre-sale illustrations in all circumstances?

It is clear that advisers prepared to adhere to these practices can only help improve standards in the industry, highlighting their own integrity in the process.

Alison Morris is senior manager for retirement income and planning at Scottish Widows

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