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I smell a Ratner

Those who know me well, know of my long-standing love affair with vintage scooters: Italian, German, Spanish, even a weird Indian bike called the Kelvinator Avanti. I have owned and ridden many beautiful machines in my time.

Unfortunately, my love affair has not always been fully requited. Many are the times that I have stood on the side of the road, my scooter refusing to move no matter how many times I tried to kickstart the engine.

Last week, I fear, the ABI found itself in a similar position, desperately trying to kickstart an initiative that, like my Kelvinator, is destined to do little more than fart and burp its way into oblivion.

The initiative that I am referring to is the new basic advice regime, much loved by both the FSA and, we are led to believe, the Treasury.

Put simply, this is the plan that would allow unqualified advisers to sell basic products to less well-off consumers without inquiring into their overall financial needs.

Presumably working in the belief that poorer people are thickies and can only manage 20 minutes, tops, of an adviser’s time, they have decreed that it is possible to sell these products by means of a basic yes/no question- naire. And because the less well-off don’t have much money, certainly not enough to pay for decent advice, the best way to deal with this dilemma is to give them Gerald Ratner-quality advice.

The problem with this is that, like Gerald Ratner’s jewellery back in the 1990s, the advice people will receive through it is also likely to be crap.

Two years ago, when the first tests were carried out to see how filtered advice might work, the research found that almost half the recommendations to take out a stakeholder pension were unacceptable for a range of reasons, including incompatibility with attitudes to risk and the respondents’ financial situation and objectives.

Subsequent research a year later, with a revamped questionnaire, found that the sample questions which were designed to screen out those who, by answering a question “wrongly”, then become ineligible to buy stakeholder product, produced two seemingly contradictory effects.

First, lots of people were screened out inappropriately even though a more detailed or personalised fact-find might have led to some useful financial planning opportunities for them.

Second, among the handful of potential clients still left after this bizarre screening process, there was still a high chance – 20 per cent in some cases – that they might be wrongly recommended a product.

We now have a third set of script-based questions which are ready and waiting to be asked. Except, sadly, that there don’t appear to be many companies willing to do the asking.

My inquiries last week suggest that aside from Legal & General, which has been running a telephone-based basic advice sales operation for the past six months, only the mighty Forester Life is using this sales method with its customers.

But six months into the new regime, no one can claim it is a massive success. It is all the more ironic, then, that the ABI is backing this initiative. Perhaps it hopes to earn brownie points from the FSA.

Like my Kelvinator Avanti, a scooter made by a fridge manufacturer, basic advice is a fundamentally flawed system that is unlikely to be able to deliver much to consumers. It should never have been invented – and trying to prod it into life is sheer madness.


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