Downside of an uplift

I am becoming concerned about the language used to announce the first deals between financial advisers and product providers in the new depolarised world of financial services.

The language appears to be stuck in the past, with bold statements about driving up commission for advisers as firms move to take advantage of the new liberalised environment for delivering financial advice to customers.

What is of serious concern is that if the only consequence of the new regulatory regime is to drive up the income of distributors with no tangible improvement in the offering to customers, then the consumer press will hang us out to dry and rightly so.

Our industry is constantly scrutinised for mis-selling and focusing on pushing product sales. Should we not be looking for ways to win back trust rather than concentrating on the money that advisers can make?We have a once-in-alifetime opportunity for financial services to focus on offering a proposition that consumers understand and value, while creating long-term value for advisers, distributors and shareholders and putting us on a par with other successful service industries.

Isn’t it about time we focused on how we can deliver the key objectives of the new regime, that is, to give the customer more choice, more access and transparent propositions that are understood?To do this we must determine what are our core propositions. For me, the focus must be on advice. Then we can seek to educate customers on the value we offer through quality financial planning services.

Approached in the right way, the regulatory changes brought about by depolarisation can be seen as an opportunity to improve the quality of advice.

One of the biggest attractions of the new regime is that it lends itself to developing a proposition which involves spending more time on the advice element of an adviser’s role, such as getting to know clients, understanding their financial needs and creating solutions, rather than the provider selection element.

This does not mean that advisers should not be rewarded for providing quality advice. However, the recent exclusive focus on commission and who will get the biggest uplifts takes away the focus from the customer benefits of depolarisation.

Of course, in any competitive market, manufacturers pay higher margins to big distributors because of their scale and quality – the retail grocery sector is a good example. This is distinct from the quality and value for money of the solution being offered to the customer.

In other words, the margin that arises from a commercial relationship between manufacturers and distributors is relevant to a point but the important factor is how the distributor uses the improved margin to enhance the offering to customers.

Distributors that have the scale and expertise to do the best deals with product providers undoubtedly will benefit from better margins. However, there is nothing to stop a proportion of this being passed back to customers through an added-value offering.

The big banks have been criticised by some for potentially receiving higher margins in the new depolarised regime. This criticism misses the point.

Barclays’ approach in the new environment will be to select the best providers for each product rather than tie to providers across their whole product spectrum. We believe that as certain providers excel in some areas but not necessarily others, this is a more logical and customer-focused approach.

As a consequence, we may achieve higher margins due to of our strong customer franchise, quality of services and scale.

However, margin gain can be used to enhance the customer offering and quality of advice services.

The winners in the new environment will be those distributors which have wisely invested margin improvements arising from more efficient commercial relationships to benefit their customers.

Barclays certainly will be one of those winners by delivering an added-value customer proposition, more efficient servicing and a quality advice offering to customers.

So let us get the debate away from who will get the biggest commission to how the new regime enables advisers to deliver added-value services and recognises the benefits of treating customers fairly.

Jim Reeve is managing director of Barclays Financial Planning

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