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Friendly fire, not a shootout

It would be a hard-hearted commentator who could find nothing of value in a 220-page report; it would be a complacent one who failed to find something to criticise. I found the Sandler report a “Leone” – containing the good, the bad and the ugly.

Let&#39s start with the good. I reckon IFAs should feel good about quite a few of Sandler&#39s recommendations.

Sandler has had his go at defining the cost of advice. He does it more flexibly, more in tune with current market practice and more explicably than the FSA&#39s benighted defined-payment system. The cost of advice can be cov-ered by commission, fees, an hourly rate, whatever, provided that it is explicit and disclosed up-front for agreement by the client.

I would suggest that this cost disclosure should be accompanied by a list of the many services which IFAs perform for their clients to demonstrate value for money.

Second, Sandler asks the FSA to define what constitutes misselling and to cut down the key features document. How many acres of woodland would have been saved, how many tedious questions left unasked if these recommendations had come earlier? The IFA sector has been constructing paper mountains in the fear that, without them, someone from the FSA – with the benefit of hindsight – will judge that a missale has occurred.

Third, Sandler tackles the question of disclosure and asks what advice means. He concludes that independence – and the method of remunerating the advice provided – needs clear highlighting to the consumer. He proposes that only independents should be allowed to call themselves advisers. So there is a clear branded distinction between those who advise and those who simply distribute products.

All these recommendations are positively IFA-friendly. Those IFAs, including Aifa, who met and briefed Sandler and his team were clearly able to explain what contribution the IFA community can make to the sector.

But every silver lining has a cloud. The proposals for stakeholder products seem less than baked and based on a false premise. In Liliput, according to Swift, they argued over which end of a boiled egg to hit first; in the UK financial services community, we argue over whether financial products are sold or bought. I, representing the big-endians, say they are sold. I believe that I have on my side experience, countless research studies and acres of discarded decision trees. Sandler is a little-endian supported by hope and a claim that the industry and its regulator have never really been serious about simplification.

This one will run and run as the stakeholder discussions get seriously under way in the autumn. I consider the prospect of the entirely untrained handling even the most regulated of products a recipe for disaster in five years&#39 time. While IFAs may not be part of the disaster, it will be your sector which catches the reputational damage.

What happens next? Yes, naturally, consultation. The FSA and the Treasury – because both have bits of the report to consider – will produce a work plan in September and will start on the design of stakeholder products, the definition of misselling and the burial (I hope) of the defined-payments system.

This is not the publication of a report, it is the birth of an industry.

I have no room here for analysis of Sandler&#39s tax proposals (will removal of one tax break but not another simply distort the market?) or the with-profits chapter. There is also interesting stuff about asset allocation and investment knowledge. No space for Pickering either. After two reports of this significance in one week, we need a break.


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