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Independent view

Do you remember the rather silly Tory “demon eyes” campaign against Tony Blair during the run-up to the 1997 general election?

Well, at the time, I must say I thought it was a bit ridiculous, even desperate, of the Tories to have such a campaign but, having experienced five years of the Government as an IFA, Blair&#39s threat is far worse than even I ever imagined it could be.

I recently attended a Sofa seminar on the Sandler and Pickering reviews at the CII in London. There were a number of industry speakers with some useful and interesting insights and views and a number of IFAs who were getting quite hot under the collar about the proposed changes.

I came away feeling highly frustrated that the Government seems to have it in for financial advisers and the insurance industry generally. There are over 30 reviews being carried out in financial services at the moment.

Just when it appears that the industry has been substantially cleaned up with disclosure, transparency, polarisation, minimum qualification standards, CPD, etc, the Government wants to hit us even harder. If Sandler&#39s review is carried through, it will have far-reaching and long-term damaging effects on the industry.

The proposals which I find most worrying are the introduction of stakeholder investment products, with-profits reform, the introduction of a new category of lower qualified and less experienced advisers and compulsory fee-charging if you want to remain an IFA. I am not too worried about multi-ties in principle as long as the consumer fully understands the distinction between each different class of adviser.

Having said that, it is clear that the public favours IFA advice above all other forms of advice, as evidenced by industry new business figures which show IFAs capturing the majority of new business across the board and IFAs&#39 share of that new business is growing all the time.

There are plans to introduce three stakeholder investment products – an investment bond, a with-profits bond and a mutual fund. All are to have a 1 per cent annual maximum charge although this is possibly rev-iewable upwards at a later date.

The stakeholder with-profits bond is to be much cleaner and transparent. The sting in the tail, however, is that existing with-profits bonds will have to be restructured as stakeholder with-profits bonds. The new proposals are not just for new bonds.

Two things concern me here. First, many companies will simply get out of the market or suffer financially. Second, will the Government introduce another RU64-type approach to the selling of non-stakeholder investments?

A number of big insurance companies are already struggling and having to raise money at the moment such as Zurich, Standard Life, Legal & General, etc. As for Prudential, I cannot see how the company can survive in its present form if the stakeholder with-profits bond proposals are fully followed through. If financial advisers can only sell stakeholder investments, then unless they can make the successful switch to fees many of them will be forced to cease trading.

I believe the result will be less consumer choice as more and more companies either close to UK life and pension business, such as Royal & Sun Alliance, merge or cease trading. Clearly, this will lead to less competition as only the very biggest companies with mass economies of scale such as Norwich Union and Legal & General will be able to survive in the 1 per cent world.

Less of the public will have access to experienced qualified financial advisers. Furthermore, there is growing concern that letting loose many less qualified and experienced salespeople or “product distributors” to sell “safe” stakeholder plans will create widespread misselling. It is naive of Sandler and the Government to think there is such a thing as a “no-risk” investment which literally sells itself.

As for the Pickering review, why did he bother? Pickering is an actuary so his proposals simply aim to cut the costs of running final-salary schemes. He proposes that companies can have the choice of not offering index-linking or death in service benefits, etc. Why offer a final-salary scheme if all its advantages are going to be removed? Companies are stampeding to stakeholder sch-emes already and deserting their final-salary schemes anyway, so what is the point?

Regrettably, the Government&#39s whole policy towards savings and investments is misguided and naive. The only way to increase savings in any advanced Western country is by tax incentives, competition and a thriving independent sector.

Old “demon eyes” needs to interfere less in the free market and allow us to build on what has been for many years a thriving financial services market for both the public and the adviser.

Tony Byrne is managing director at Byrne Williams


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