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Closing in on nirvana

In the past few weeks, the FSA has published its intentions surrounding regulation of the promotion of financial services.

The financial promotions team of 30 is focusing on how marketing can mislead customers in a number of areas such as clarity of product, risk warnings, percentages, headline claims, misleading statements, charges and early red-emption charges.

We all, especially advisers, need to take greater care when promoting services to clients with any ads or mailings. As we grapple with the many different rules and regulations that have come our way of late, the idea that this could be good for business may seem, well, a bit crazy.

I have considered how the rules and guidance translate into reality and it has become clear to me that this could be very good news indeed for advisers to the tune of an astonishing 200bn.

According to Datamonitor, this is the total amount of assets under management invested by consumers directly on the back of advertising, direct marketing and online activity.

Yet due to FSA rules and European directives, all promotions that go direct to consumers are going to have to be much longer and more complicated, making it increas-ingly difficult to sell “direct”.

Risk warnings have to be displayed clearly and in equal prominence in the body of an ad or direct marketing pack. The pros and cons of a product must also be explained in detail.

Here is an example of how the FSA is thinking: “We have seen a number of cases where significant risks are only explained in the key features document but the key benefits are outlined in the cover letter. Where this is the case, we would expect to see a balance of risks and benefits in the cover letter instead.”

We will also not be seeing much of past performance messages in ads, direct marketing or sales aids either. If they are used at all, they must be within prescribed formats and over certain timeframes.

Creating, hard-working ads in a small space in the pages of national newspapers is going to be practically impossible and direct marketing packs will also not be able to “sell” but to simply generate leads.

Therefore, I predict that we will see less direct offers to consumers and providers will instead increasingly rely on brand advertising and on advisers to close the sale. This represents a big business opportunity.

It ties in with what consumers told Teamspirit in a national research project run by pollsters yougov. We asked investors who or what influenced them to buy. Not surprisingly, talking to their financial adviser comes high as well as editorial in their trusted newspapers (so advisers who national journalists turn to for comment each week have got it sussed).

They also say other professional advisers such as accountants and solicitors and word of mouth from friends and family are hugely influential as well as searching for information online.Source: yougov/ Teamspirit 2004.

So, given that consumers are saying trusted advice influences them the most and regulation is making it hard if not impossible for providers to attract business direct, it is Nirvana for advisers.

The FSA’s David Kenmir also thinks that there are opp-ortunities for advisers and has gone on record saying: “With widespread change approaching and a growing consumer need for high quality and affor-dable financial advice, the retail intermediary channel must take advantage of the coming opportunities.”

But one cautionary note. Customers who have invested through the DIY route have probably been looking for cost savings and/or a way of transacting that is easy and fits with the fact that they are time-poor. This is backed by IFA Promotion statistics. Of the 446,000 consumers who contacted IFAP last year to find an IFA, 76 per cent did so online. But of the 10,000 member IFA firms, only 51 per cent have a website.

So, on the one hand, we have the opportunity to make the most of the demise of direct marketing for regulated products but on the other, advisers do need to think hard about how to make their service easier and more in tune with how an increasing number of consumers want and need to manage their money. But that is what I call a nice problem to have.

Jo Parker is managing director of Teamspirit

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