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Community service

What sort of year do you think lies ahead? Bloomberg forecasts that “the resilience of consumer spending augurs well for a rebound in 2008 that will be supported by a gradual improvement in credit markets, dissipating drag from housing and declining energy prices”.

Forbes believes “the annual forecasts have been pessimistic, with some analysts warning of a 50 per cent chance of recession in the UK which has pushed the pound to all-time lows against the euro and made it one of the currencies to avoid in 2008”.

What we do know is that levels of debt are certain to rise during 2008 and the credit crunch will make it more difficult for people to obtain loans and mortgages.

It is in economic conditions like this that the more useful benefits of financial advice come into play, helping people become financially independent and providing advice to stop them falling into insolvency.

It is often thrown at me that financial advisers are most interested in making the rich richer.

This is not the case for the quality financial advisers who are as competent in debt advice, money management and aware of social security benefits as they are of CFDs, VCTs and inheritance tax planning.

The problem that we may see as the year unfolds, and more people enter individual voluntary agree-ments, as predicted by KPMG, is, where do people go for advice?

The debt counselling services do a sterling job but their ability to provide advice on financial products that can help people who are getting into financial difficulty, are restricted.

Those of us that have been on the coalface and looked into the eyes of people who have taken on the biggest financial commitment of their lives, a mortgage, but do not see the point of taking out any protection or repayment products, will agree with me that this is he time when products need to be sold, as they are not bought. Three cheers for the IFAs who will not arrange a mortgage without insisting that protection is taken out alongside the loan.

The FSA recently released a report carried out by the London School of Economics which looked into the extent that salespeople can influence buyers and whether mandatory information disclosure offsets the sales process.

The research studied 214 people taking out an unsecured loan and 25 financial advisers paid by commission with bonuses paid for volume selling income and loan payment protection.

Psychology and behavioural economics research challenges the belief that consumers act the most logical way because attention is a scarce resource and processing power is limited.

Lots of written information, such as product disclosure, will deflect attention from what is really important. In fact, the research (available on the FSA’s website) states that product disclosure actually makes no material difference to choice. It was the extrovert salesperson with a few minutes to make a sales pitch that made the most difference to whether a purchase was made or not, irrespective of the competitiveness of the product.

So let us look to place the retail distribution review in relation to this research.

What will happen if competent honest IFAs who look after the finances of their local communities, whether rich or in debt, can no longer remain independent because the qualification hurdle or capital adequacy level is set too high?

Is it fair to push everyone in debt or struggling with their finances to the charitable debt agencies for advice? I doubt that the mighty banks (for which is RDR is ideally written) will help these people with cash management advice. They will just sell yet another loan.

Don’t forget that in 2005/06 , 11 per cent of lowincome households did not have a bank account and, more often that not, they were refused by the banks.

Surely, competent IFAs that choose to offer whole of market advice for every type of financial product to every type of client, whether rich or in debt, while acting on behalf of the client should not be forced to stop offering this invaluable community service?


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