Will the menu system for remuneration work and is remaining independent preferable to being multi-tied?
It was very interesting to see that Sir Howard Davies chose the occasion of the Aifa annual dinner to announce the broad outline of the FSA's decisions on CP121. There will be a consultation paper in January 2003 so, while we cannot yet dot all the i's and cross all the t's, we do now have the broad outline of future policy.
Margaret Thatcher famously uttered the phrase: “The lady's not for turning.” Fortunately for IFAs, the FSA is not so dogmatic. Instead, it is responsive during consultation.
Davies has confirmed that the definition of whether or not someone can be called an independent adviser will turn on whether they give advice across the market and whether the option of paying by fees is offered to the customer.
This supports the Aifa and IFAP menu project, which shows how trade bodies, supported by IFAs, such as those in the Misys networks, can work with the regulator in joinedup thinking.
Will the menu work? Patrick Gale, chief executive officer of Misys Life & Pensions, led a debate at the recent Misys convention on this point.
Gale also sits on the Aifa council and supported, from an early stage, the proposed menu of prices for various products, to be given as early as possible to the customer in an advice situation.
The FSA now needs expand on the original theme but, from what we know, the menu system should work well. It leaves IFAs free to be paid commission as long as they offer customers a payment option including fees.
The choice is squarely with the customer, which has to be good. Whether or not a comparison of the commission an IFA earns with the market average will work in reality is unknown but we eagerly await the next level of consultation. Will the customer understand it? Will solicitors publish their market average rates compared with actual rates? Or accountants? And if they did, what would it actually tell you?
Davies emphasises that the FSA wants to see the cost of advice made known to consumers in all distribution channels. The principle of equivalent disclosure should work in the IFA's favour, provided it can be produced in reality. Again, we need to see the detail but an equivalent form of disclosure for the tied sector is a key issue and it is pleasing that the FSA has taken this on board.
Consumers have to understand the exact nature of the advice they are receiving. This will have more effect than fees or a commission menu. Face-to-face advisers do an excellent job in getting their customers to face up to reality and motivating them to save or protect what they have. This leads to more people building up more personal assets and helps to narrow the savings gap.
Overall, the adoption of the menu approach to remuneration is very good news indeed. As a result, Misys believes that many more advisers will be able to remain IFAs in the post-polarisation world or, indeed, move from the tied into the IFA sector.
But this does not mean that advisers will stay as they are. IFAs and tied agents still have lots of choices to make surrounding CP121 as a whole.
Misys is certainly spending time and resources to help its member firms have those choices in tomorrow's world and to develop their businesses in whatever way is best for them.
Andrew Bedford is director of marketing at Misys Life & Pensions