From where I am sat, looking at the new proposals for depolarisation, it
does not look too different from what we have already. I suspect that many
IFAs and life companies will be laughing up their sleeves that their
lobbying has stopped the previously proposed three-tier system.
But it is a short-term victory. The crux of the matter is that investors
still do not get advice, they get products.
What does every IFA want to know from the life company's broker consultant
(and no one is guiltless)? “What can I sell the customer?” However, the
answer over the last few years has been:
School fees plans.
10 per cent structured derivative products.
Today, property bonds have been added to the list, right at the top
of the commercial property boom.
I also believe it has been a great year for inheritance tax planning – not
that there has been any planning going on. The poor old investor has been
stuffed into some high-charging, low-performing offshore bond with an
expensive trust arrangement.
What is different with this new menu system? It tells clients how much they
are going to be charged to be stuffed into these different products.
How I wish CP121 in its original format had been set in stone. It seems
perfectly reasonable to me to describe somebody as either a tied product
salesman, an independent product salesman or a professional adviser.
There would have been a great transitional period during which people in
the middle ground could decide which way to go. They could have all started
out as AFAs and some would then have moved to the tied route because of the
nature of their business.
There is no stigma attached to being tied. Ask the people who work for
Rothschild Life and Allied Dunbar. Indeed, Equitable Life salesmen made a
virtue of it.
The people who really wanted to remain independent would have an
opportunity to fence-sit through a transitional period during which every
journalist, accountant, solicitor and investment commentator would be
telling investors that they must go to someone at the professional end of
There is no question that very few investors would initially be prepared to
pay the fees at that end but a few brave souls would embark on the road to
actually advising clients rather than flogging them a product.
I envisage a time when the people who offer advice will not actually supply
the product. They will suggest that the client goes to a quality,
trustworthy wholesaler who has to warrant their actions to the professional
adviser. Or the client may prefer to buy investments, on which they have
been advised, execution-only from the cheapest discounter in the
marketplace. (Many do this already, that is, take the advice and cut the
It is in this area where I believe we will see the greatest changes in our
industry. I believe that most investment products will be marketed by
manufacturers, just like medicines are marketed by pharmaceutical
companies. Professional advisers will recommend them, just like doctors
prescribe drugs, and retailers will supply them. The actual salesman will
no longer exist.
No one in this industry should aspire to be a salesman. We already have a
euphemistic name for the industry's salesforce – independent financial
advisers. They now have to make the transition to become true independent
financial advisers, not leave themselves open to be categorised with people
who sell timeshare and double glazing.
Whether we like it or not, I am afraid this country does not like people
who actually sell to the general public. Today, almost everything you buy
is supplied, not sold to you.
I am afraid our Government, our regulator, the national press and consumer
associations will never be satisfied until the salesmen are completely
stamped out of our industry. It is up to you to decide where you are going
to position yourself in that brave new world. Commission has escaped for
now. It is a short-term victory.
Peter Hargreaves is managing director of Hargreaves Lansdown