I was never a fan of Gordon Brown, far less his henchman Ed Balls. However, when I wrote to him years ago on the topic of unequal tax treatment, I got a rapid audience. Regrettably, the civil servants were not prepared to fight off the ABI lobby so it did not move forward.
I made the point that I can transfer in specie from one Isa to another, from one Ssas to another and from one Sipp to another, yet I cannot transfer in specie from one investment bond to another. I realise the FSA cannot make this happen but it needs to recognise that, without this facility, transition will be a one-night wonder.
The irony is that the Treasury loses out at present, especially in regard to tax take in with-profits bonds. Before any with-profits disciples come after me, the manipulation of tax deductions in investment bonds is outrageous and makes TERs of 3 per cent look good value.
It is surprising that the IMA has not helped in this regard and maybe it is, as I write, beavering away. It has to be said that speed is not everything, as the ABI’s new sector labels demonstrated this week, as it was criticised for focusing too much on one asset class.
There is much talk of client centricity but little evidence, with bonds with lock-ins and no ease of transition. On lock-ins, St James’s Place says its has had its investment processes signed off by the FSA. But wait, not only is it RDR-ready, the label SJP now craves is restricted, independence no longer has the cache. Does this mean advisers will cease to be partners? They need new titles, suggestions on a postcard or on the web a prize for the most apt or more likely printable one. But I digress, as transparency becomes more common, so those who profited from opacity will become more vocal.
I feel there is a disconnection between those who run providers and the clients of intermediaries. I am not sure providers have grasped just how tenuous their connection to the end client now is. Operating in a vacuum has posed few issues in the past century but I doubt this will be equally true in the years that follow.
Now that transparency is coming for the financial services sector with the RDR, the general insurance side needs to follow. Its not as if it is being modest in the level of commission/brokerage it retains. The maxim needs to be value for money at all times.
The fund companies will be similarly affected and this has already started to appear with lower costs plus performance bonuses. But TER is not enough, especially when it does not reflect the trading volumes. In some cases, the trading can head for 200 per cent of the portfolio, making the TER the least of your worries.
Some time ago Michael Heseltine, stated in the House of Commons, following a notorious 1994 speech by Chancellor Gordon Brown which rather clumsily referred to “post-neo-classical endogenous growth theory”: “It is not Brown’s. It is Balls.”
If in specie transfers for bonds is not part of the transition project then all we are doing is rearranging the deckchairs and transparency stops with the removal of commission. This may be nothing to do with Brown but it is certainly balls!
Robert Reid is managing director of Syndaxi Chartered Financial Planners