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Driving forces for change

Norwich Union is to call on the FSA to abandon proposals for primary advice. It is also suggesting that the qualification bar for professional advisers be set at diploma in financial services level and it wants customer-agreed remuneration to apply across all channels, including bank-based advisers.

The views will form the financial services giant’s final submission to the FSA’s retail distribution review discussion paper. NU intermediary and partnership director David Barral has also announced that NU will be moving to factory gate pricing next year.

NU believes primary advice will not work and muddies the waters for reforming the advice market. Barral suggests the FSA should examine a system of sales support with a working title of assisted purchase. This would work for sales of simple products through relationships such as that between NU and the Post Office.

Significantly, Barral believes that by setting the diploma or AFPC-equivalent as the qualification standard for professional advisers, the controversy surrounding the category of general financial adviser and its temporary nature will no longer apply.

He believes a move to charNorwich Union intermediary and partnership director David Barral tells John Lappin why customer-agreed remuneration is essential to regain consumer trust but says it must apply to banks, tootered status should be encouraged but it should be left to the market and not be a regulatory requirement. He says NU will help advisers through this process of getting better qualified. But Barral says any changes on the level of exams should not extend to grandfathering which he opposes “100 per cent”.

He says it may be possible the FSA will compromise and not require such high levels of capital adequacy provided adviser businesses firmly establish customer-agreed remuneration to address the churning issue. He believes advisers should be expected to hold some sort of bond – one of the RDR suggestions – to protect the compensation scheme if they go into administration. He believes this should have to be paid in the same way as the ABTA system for travel agencies and advisers should not be able to set up in business using a credit card balance.

Barral wants CAR to apply to banks as well as advisers. He says: “If you are going to give advice, CAR should apply. We do not think there should be a commission option if it is advice-based. Even if we could show there is no bias, we think that train has left the station. To get consumer trust, we have to have clear separation between the cost of the product and cost of advice and a fundamental shift in decisions about cost of advice from provider and adviser to adviser and customer.

“Advisers can then put themselves beyond reproach, otherwise the question remains, in whose interest is the adviser acting? I do not think good advisers have anything to worry about from the change.”

Barral says CAR can be achieved through the customer writing a cheque or facilitated through the product. He says: “The charges should be added on explicitly. The fundamental difference is that agreement is nothing to do with the provider but we will facilitate that payment.”
He hails the recent moves by The Money Portal to move its members and advisers away from big up-front commission and rewarding this change in its practice buyout scheme.
On making the diploma the required qualification, he says: “There was an artificial separation between general financial adviser and professional. General financial adviser was a staging post. Let us move to competency and professional stan- dards. Diploma, not chartered, is a lot more accessible but it pushes up standards and I do not think anyone could argue that is unreasonable. We still want people aspiring to the chartered level. I would be using that as a differentiator, not a new category of planner.”

Barral says he sees problems with giving a regulatory dividend to chartered planners but adds: “The regulatory dividend should come from individuals being part of a professional body which could strike them off. That is the way to become credible as a profession.”

Barral points out that of all the working party groups, the one the FSA has kept going is the regulatory barriers and enablers group which he sits on and which will meet again soon.

On generic and primary advice, he says: “Generic advice is a contradiction in terms. It is not on the commercial radar. Primary was an admirable response to acknowledge they had not got basic advice right but we are going to argue there should not be primary advice. It muddies the waters.”

However, he believes there is scope to use brands such as NU to distribute simple, easy-to-buy, low-cost products with online tools and access, plus guidance which could involve talking people through the purchase. He describes this as assisted purchase and says adviser firms may use the model, too. He also sees no reason why such sales should not have ombudsman protection. He says such sales would definitely have treating customers fairly fully embedded in the process.

On switching and churning, Barral says NU has had conversations with about 200 advisers who were switching big amounts of business. He says: “There were three groups. The first said they had taken the decision to move out of with-profits. Now, I would say it might be questionable for some clients and you had better be sure of your facts. The second group said we believe in this change, it is just we are not doing it with you, and the third said we know we are ripping you off and will continue to do it as long as you are stupid enough to let us continue to do it.”

Barral suggests the move to CAR could initially accelerate the movement of money and lead to less persistency but the market will settle down into a more sustainable long-term position.

Asked about the possibility of more failures in advice businesses, he does not believe adviser groups are in the same position where they “tried to grow themselves out of trouble”.

He also wants a debate about independence, suggesting it should mean whole of market and financially independent in terms of business but he also asks the question whether it should mean independence of ownership, too.

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