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Independent view

It&#39s the economy, stupid!

Bill Clinton&#39s famous election sign should be hung over the entrance to every IFA&#39s office in Britain at the start of 2003. Maybe then we will concentrate on finding plans to help our clients rather than being so obsessed with our own future.

This year looks like marking the most dismal three years in the markets that any of us can remember. The result for our clients has been near catastrophic in the short term and, far more worryingly, surprisingly poor over the medium term. As I write, the FTSE 100 is down by 15 per cent over five years – almost unbelievable for those of us raised on the BZW equity/gilt study.

And yet as the Christmas party rush gathers pace, only one subject is on the industry&#39s lips – regulatory change.

Despite the fact that with-profits bonds have 20 per cent MVRs, annuity rates are at a 30-year low and Isa investors wish they had never heard of the industry, all we speak of is depolarisation, Sandler suites and better than best rules.

It is no surprise that the industry is so obsessed with its navel, there never has been such a period of intense change. We are a grossly over-regulated industry and the constant changes make planning near impossible. But all this change matters little to our clients while the state of the investment economy is seriously undermining our business.

None of us is receiving letters from clients asking about the post-CP121 world or enquiring after the progress of the European directive on financial services. But all of us are receiving constant communication from clients who are very worried about their savings and asking for our guidance. Finding ways to help clients in these markets is difficult and requires innovation – and most of all it requires our full attention.

This makes our obsession with regulation doubly worrying. We squabble over the future rules of the industry, all the while previously mighty product provider companies are falling into loss or are abandoning the life and pension market completely, Isa sales are collapsing and the savings gap grows ever wider.

It might feel like these businesses are being wrecked by regulation but I do not believe this to be the case. It is failure of their products that is causing the problem.

In 2003, the main attention of the industry needs to get back to selling savings and investments and we should try and leave the management of change to small, specialist teams.

I am occasionally invited to meet with the chief executives of the bigger product providers and throughout 2002 I have been asked to discuss with them the future status of IFAs and give my opinions on CP121. In 2003, I want to get back to being an IFA and leave these matters to my compliance team. What interests me is marketing and product innovation.

Mao Tse Dong&#39s guidance to his guerillas in the 1930s was to be “reeds blowing in the wind” swaying back and forth with changing events. IFAs should try and meet the regulatory challenge in the same way and spend as little time as possible debating the new rules. What we should concentrate on is adapting our products and advice to meet our clients&#39 needs. We have never faced such challenging markets and now is the time to develop new ideas and strategies.

None of this is to say that the regulatory changes taking place are not important, nor vastly damaging to IFAs in some cases. It is essential that we fight our corner and, as European control takes over from national control, it will become even more crucial that we are heard.

To have any chance of influencing matters, British IFAs must speak with one voice – which is where it becomes essential to have one representative body. To my mind, Aifa is now the obvious choice.

The adoption by the FSA of their menu option is a triumph for the organisation and a lifesaver for many IFAs. By backing and funding this trade body we now know that we can influence future regulation. Even more important, from my viewpoint, we can leave Paul Smee and his excellent team to it and we can concentrate on financial advice.

For 2003, I think financial advice must centre on rebuilding confidence in our products. We need to find an understandable and fair system to replace with-profits, we need an income asset that will not be the next class to plunge in value and we need to find a way to get pensions back into vogue. I should also wish for world peace and universal happiness – let us hope that my financial targets are not so unobtainable.

Philip Rose is managing director of Wentworth Rose

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