At a Money Marketing retail distribution review invitational recently, someone asked what the FSA or Government needed to do about telling people about the retail distribution review changes. I had momentary nightmare visions of wasteful and costly FSA advertising campaigns.
The great thing about the RDR is that nobody needs to spend any money on promoting independent advice.Because the RDR gives genuine IFAs exclusive ownership of the term, they are the kings of the castle.
All the consumer research shows that despite being woefully ignorant about almost every aspect of personal finance, consumers do understand the importance of “independent” and see it as the gold standard. And the media will constantly reinforce that message.
All IFAs have to do is deliver honest value-for-money independent advice and cultivate the right professional connections and the people they want as clients will find them.
I am not saying that IFAs do not need to do any marketing but the first and most important step is getting the branding and the service completely right.
That does not mean just shouting “We are independent!” It means having a clear service proposition and explaining it well to potential clients.
I am pretty sure that the majority of IFAs will end up mainly offering restricted advice under the new regime. Provided you also have an independent service and can explain why you offer both, you can probably do this while retaining credibility.
After all, restricted advice, as defined in the RDR, is what is provided now by most IFAs.
Most people seem to think that restricted advice will be the regime used by bancassurers. I think what they really want to do is offer simplified advice, with decision trees pointing to a range of basic products.
That is what they ought to offer but they can only do so if the FSA does two things.
One is to acknowledge that, for this section of the market in financial services to work at all, the FSA has o regulate products.
Consumers do not understand enough to be able to judge value or risk, so the regulator must simply ban potentially harmful products.
The second is that it must change the terms on which the Financial Ombudsman Service adjudicates cases involving simplified advice and stop it judging them by independent advice standards.I predict that the FSA will do neither of these things until it is reconstructed with different objectives.
So bancassurers will try to work out how to offer restricted advice services but they will not cost much less to run than independent advice services because of having to get advisers qualified to the right level and having to jump through many of the same regulatory hoops.
I cannot see this being an attractive line of business for them unless there are major rule changes before 2012 – which, no doubt, the banks will push for.
Simplified advice in bank branches or over the internet linked to simple products is the only viable future for the mass market. Until we get to that point, the system will remain dysfunctional.
IFAs, with carte blanche to cater for the top 15 per cent of the population, need not worry about their own future unless they are incompetent. It is the rest of the market that is in an unholy mess.
Chris Gilchrist is director of Churchill Investments and editor of The IRS Report