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Congestion charging

The FSA’s position on adviser charging is clear. It wants to see commission banned in its current form by the end of 2012. Dan Waters’ speech on January 16 at the Association of British Insurers’ conference is particularly illuminating.

There are a number of issues that both intermediaries and providers are going to need to get to grips with unless the proposals are significantly watered down in the lead-up to publication of the consultation paper in June. I would like to explore some of the principal ones and possible unintended outcomes.

All the research undertaken over recent years indicates that most people are fee-resistant and do not accept the true cost of delivering advice and ongoing service. One consequence could be that the number of intermediaries offering advice as opposed to sales will reduce, which is therefore counter-productive to the FSA’s aspirations.

It follows that before the proposals become final, more detailed impact analysis is needed to determine how consumers are likely to be able to access advice and from which types of adviser.

Another important issue is the level of competence among intermediaries to successfully negotiate fees. While examinations are seen by many as the principal issue facing intermediaries, the challenge of teaching intermediaries how to negotiate effectively and charge fees may be greater. Only a small minority currently have the skills to do so and often, when they work on a fee basis, anecdotal evidence suggests that they undercharge and lose money in the process.

Some intermediaries have already begun to recognise this and are providing or sourcing tuition but this is only part of the solution. Systems will need to be adapted and improved in many firms to enable time recording, fee billing and collection processes to be effective and compliant.

The position of providers in relation to adviser charging and whether some form of factoring should still be allowed is also problematic. A number, including Legal & General, Norwich Union and Skandia, have questioned how realistic the timescales are to be able to complete changes before 2012. Others have questioned the costs and the impact on capital and whether the money could be better spent.

A final interesting point arising from the Dan Waters’ speech is his assertion that “offshoring” will not work for firms that attempt to do so to retain the commission model.

June is still months away. However, firms and providers which do not continue to lobby, plan, anticipate and act when appropriate but instead decide to wait and see, hoping for watered-down proposals, stand to lose out to their competitors who are ready to move early.

Roderic Rennison (roderic @rennisonconsulting.com) is director of Rennison Consulting

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