There has been a plethora of articles and reports emanating from the media recently that have a particular theme in common.
It appears that, finally, many of our industry’s leading pundits are coming round to an idea that I first heard propounded by a colleague nearly 10 years ago.
It is simply that in financial services, there is a unique marketplace where the consumer does not naturally have a marginal propensity to buy but rather, in the vast majority of cases, has to be sold to.
The story the pundit used to illustrate this concerned the US army. Following World War Two, the US Defence Secretary decided to introduce free life cover for all troops amounting to $50,000 dollars if they were killed in action.
My point is that less than 20 per cent took up the offer. The US army had to engage the services of a salesperson to increase the take-up to 100 per cent. Remember, this was absolutely free.
The myth goes that the defence secretary increased turnover by asking the men en masse to calculate the cost to the US army of each battalion that was killed. He then asked them to consider that, faced with some battalions that had life cover and others that did not, which would they send to the dangerous combat zones first? Instant 100 per cent take-up.
The point of this tale is simple. People by and large do not always do what is logical and right for themselves. I am certain that if I set up a stakeholder pension for a company tomorrow that had 102 per cent allocation, no charges what-soever and a choice of over 250 external funds, it would still take a free DVD to clinch the deal in the absence of employer contributions.
I am being a little frivolous but there is a serious side to all this. The Government decided early on that the solution to consumer apathy towards savings was pricing. They have been proved spectacularly wrong on every count – Catmarks, stakeholder pensions and now Sandler suite products. Is it not time to at least try leveraging distribution instead?Imagine this. IFAs offer a set fee for each successful savings plan or retirement fund they sell to a member of the Government’s “target” groups. The plans themselves could also be similarly subsidised to ensure fair value. This could work in a similar way to the health service and the policing could be done by only allowing appropriately qualified IFAs to practice in this sector.
Up and down the UK, IFAs would sit alongside computers helping Mrs Groggins choose where to put her 10 a week towards retirement. No forms, no bureaucracy, no poor advice motivated by commission. They would get a set fee per client, paid by central government, bringing much needed advice to those individuals who will forever remain of no interest to the private sector.
Every IFA network, salesforce or direct sales company has their share of pro bono workers. They are normally attacked as non-productive (which in private sector terms they are) and languish near the bottom of league tables, never driving a Porsche 911. Yet they do an outstanding job for clients who, unfortunately, do not make them any money.
Medicine was once only in reach of the very wealthy but the welfare state changed all that. Is it not possible that, in the same way that 50 years of altruism in our most respected profession brought the huge dividends that come from a healthier nation, we can slowly improve the financial health and general savvy of a generation grown more comfortable with debt than saving?Winston Churchill famously said, in a savage indictment of socialism: “Where they offer queues we will offer ladders, allowing individuals to climb from rung to rung.” When asked what about those who fell off the ladder, he added: “We shall have a strong safety net and the finest ambulance service money can buy.”
That was 20 years before Nye Bevan and the Government that somewhat ironically beat him in a landslide but his words ring true today.
Maybe centrally funded individual financial advice is a radical solution – but what else is working?Steve Buttercase is senior adviser at M2 Financial