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Groundhog Day

So just what is a simple product? One of the RDR’s key arguments for the devolution into primary advice is that most lower-paid consumers are so confused by the existing range of products that they refuse to take out savings and pension plans. The FSA believes that the arrival of simpler products will stimulate a demand among these consumers.

It seems that the architects of these ideas fail to heed the results of previous initiatives and regulatory interference. The introduction of stakeholder pensions did not result in additional engagement from consumers. In fact, sales went down with most business emanating from transfers. Consumers didn’t want to know and advisers no longer promoted retirement planning as it was not financially viable. We also have the following confession from ex FSA director Vernon Everitt: “We have tried it a couple of times and failed and we need to get it right this time but I am very confident we can do it.” This Groundhog Day-thinking fails to advance the engagement that they seek.

Is there a simple pension product? Is it stakeholder? Is it a with-profits fund, a balanced fund, a lifestyle fund? The concept is redundant because of the divergence of consumer understanding of financial services. Commoditising advice and consumers is the pitted road to mediocrity.

What is the rationale behind industry segmentation? Having traded as an IFA for nearly 22 years I have dealt with every kind of client. Some require a complete financial overhaul, others require guidance in specific areas, such as retirement planning, protection or mortgages. The advice is matched to the clients’ requirements.

The RDR implies that consumers with complex requirements would visit a professional financial planner. Those with simple needs would see a primary adviser. If only it were so simple. Passing exams does not confer a magical ability to assimilate facts and in return dispense quality advice. There will be many advisers who are likely to fit into the FSAs’ mooted general adviser category who are capable of providing superb advice tailored precisely to their client’s needs.

My own business is likely to fit the general categorisation and we not only provide limited generic advice at no cost but also advise on, and arrange, the opening of deposit accounts, national savings accounts, premium bonds and other non-commission based products. We rarely charge a fee for this as there is usually a cross-subsidy arising from the arrangement of other products. In one sense we fit into the professional category, although we have no intention of passing the relevant exams or limiting our remuneration scope to CAR. If we are paid to do so, we will return to prospecting for new pensions business, which will assist in meeting the retirement gap.

Why then the need for segmentation? My clients have the choice of fee or commission already. We have collected industry awards, which highlight professionalism. We only work on referrals and over 70 per cent of business is from existing satisfied clients. Isn’t this what the market needs?

I have been relieved to see that Aifa is shedding its coat of conciliation and is whole-heartedly fighting against the potential catastrophe the RDR represents. Their stock has risen considerably as a result.

Many advisers have chosen to side with the IFA defence union which, unlike Aifa, has rarely adopted a conciliatory position and chooses to fight against those industry wrongs which Aifa finds too difficult, or fails to understand.

The Lautro charges shambles is one such example, another is the woeful record of the Financial Ombudsman Service in providing a balanced and lawful service to all stakeholders.

Various commentators have tried to push the IFADU into that corner reserved for the heretic or the idiot fringe without realising their aims are honest and realistic and that there are many quality firms amongst their roster of members and sympathisers. Some are fee-based, others primarily commission.

Without Evan Owen’s continued probing, and refusal to take no for an answer, few of us would be aware of the FSAs’ cosy deal with providers over Lautro charges.

Only Canary Wharf insiders would know of the fortunes spent on fine art, taxi fares and the various shindigs held at Christmas and when senior members depart for greener pastures.

The IFADU is busy with its own formal response to the RDR and, like AIFA, will welcome any IFA that wishes to join and add to the effort.

Alan Lakey is a partner at Highclere Financial Services

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