View more on these topics

Commentary Palatable menu

Over the coming weeks, I am sure that Money Marketing is going to carry some starkly contrasting views on the latest FSA proposals for a menu approach to disclosing the cost of advice. I think that good intermediaries should be giving three cheers while firms that offer an indifferent service should start to worry.

The first important point to make about the menu is that it will apply to all firms which give investment advice. So it will affect the representatives of banks and insurance companies who give investment advice just as much as IFAs.

The second point is that the menu is not intended to convey the message that cheapest is best. We will support its introduction with consumer awareness measures and the message we aim to put across is that it is important that the client looks carefully at the service being offered by a firm, not just at the cost. It is for that reason that, near the start of the menu, firms have a space in which they can describe their proposition. It is there that the firm can explain the value it can add for clients in return for the remuneration it gets.

My third point is that while the menu certainly intends to encourage more competition, it is also a confidence-building measure. It would be ideal if consumers were prepared to pay a fee for advice but we know that most are unwilling or unable to pay by fee. Paradoxically, while consumers are happy for their adviser to take commission, this is often coupled with deep-seated suspicion about the influence which commission might have on the standard of advice provided. By getting early information about commission into consumers&#39 hands, the menu intends to help address suspicions.

I am sure that one feature of the menu which will rankle with some firms is that it is heavily prescribed. Step back and try to see things through consumers&#39 eyes. If a consumer is trying to decide whether to deal with your firm rather than a competitor they need to have information which is similar both in content and look to help them make valid comparisons. That tends to drive us down the route of prescriptive rules when in other contexts we are trying to get away from that approach.

The most challenging aspect of the design has been the section dealing with commission or commission equivalent. Here, we have had to ensure that we do not burden consumers with so much information that they have no hope of absorbing it. But the information needs to be as fair as possible so we have gone for an approach where the menu covers the main product groups directed at the mass market, distinguishing between monthly contributions and lump sums.

Monthly products include collective investments, endowments, whole life, long-term care and personal pensions, including stakeholder. For each product group, the firm gives the maximum commission it would take if it were to recommend such a product and the client is given an example of what that would mean in cash terms on a specimen investment.

One of the difficulties that consumers have at present in assessing such information is that they have no yardstick by which to compare information. We are addressing this by requiring every menu to include the market average of commission taken for each product group. The FSA will collect the data to construct the average and promulgate it to firms.

Consumer testing of the menu included a phase where we used real advisers to interview real consumers. Viewing video footage of these interviews, I was encouraged at the ease with which advisers were able to use the menu to go with the flow of the interview and at the conversation it prompted about the cost of advice.

The consultation paper also gives feedback on the depolarisation proposals in CP166. While most of the proposals stand, there are some important changes for IFAs, all of which are relaxations from CP166. These permit firms to continue to hold themselves out as independent where they are enrolling employees in a group personal pension and do not offer employees a fee option.

They raise the trigger level at which a firm has to disclose in its initial disclosure document that it has a connection with a firm whose products it might recommend. They allow firms to include terms of business with the initial disclosure document. They also liberalise the reasonable direct benefits&#39 rule so some support for software or other computer facilities can be provided.

David Severn is head of retail projects at the FSA

Recommended

Woolwich Plan Managers – Woolwich Capital Growth Plan

WOOLWICH PLAN MANAGERS Woolwich Capital Growth Plan Type: Guaranteed equity bond Aim: Growth linked to the performance of the FTSE 100 index Minimum-maximum investment: £3,000-£500.000 Isa £7,000 Term: Six years Return: 25% growth on initial investment or 50% growth in the FTSE 100 index Guarantee: Original capital returned in full regardless of performance of index […]

BM launches switching option for buy-to-let

BM Solutions has launched a fee free switch option with its base rate tracker. Borrowers are able to switch from the tracker rate, which is at base rate plus 1.99 per cent, to any product in BM&#39s buy-to-let range at any time during the life of the product. Senior product manager John Bianco says: “The […]

Correspondent&#39s week

They say that travel broadens the mind and until now I have had to agree – catching up on the newspapers on the daily commute to and from the Sunday Telegraph was a fine way to do it. However, since leaving the paper and setting up the CashQuestions.com website with PR doyenne Angela Madden, travel […]

BSA agrees long-term fixed rates needs balanced approach

The BSA has welcomed the publication of the Professor Miles&#39 report into the UK Mortgage Market, which advocates a sensible and balanced approach to encouraging consumers to take out long-term fixed-rate mortgages. In particular the BSA welcome the recommendation to lower the minimum non-member funding limit for building societies. Professor Miles recognises that the UK […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com