Since my last article in August, the Treasury is reported to have given a ringing public endorsement of Ron Sandler's flagship recommendation of a stakeholder suite of products. Indeed, Ruth Kelly went on to say he should be commended for recognising the advantages of “product rather than sales-based regulation”.
I would comment that IFAs are in the advice-based regulation, which may include a sale if appropriate. However, it is still possible to recommend a fabulous product, to the wrong client to address the wrong need. And where does product regulation get us then?
There is rarely black and white in such fundamental areas of consumer concern. There have to be shades of grey and usually compromise. My two regrets over this long summer of consultation papers – “paralysis by analysis” as one of my colleagues pointed out last week – are that Ron Sandler did not make a bigger issue of technology to drive out costs and that commentators still bandy around “the 1 per cent world”. Ken Davy, a fellow LIA past president, made some good points last week.
The time has now come where we do not continue to debate whether there should be a price cap but at what level and how prevalent that may be. The last few months of turbulent markets, with the FTSE dipping to as low as 3,300, has, I hope, reinforced the message to the FSA and Treasury that businesses need to be able to make a fair return on capital invested – otherwise they do not invest and that has broader consequences for UK plc.
I am concerned for the consumer, as well as IFAs and providers that the message did not get through from the product providers competing in the stakeholder pension market that these products do not sell themselves and marketing costs are relatively expensive per unit as average premiums are low.
Multi-distribution is a key issue for stakeholder providers but that is one product – a whole suite of products could be unworkable at 1 per cent.
In the original submissions by Misys on stakeholder, we were very clear that a charge cap of 1 per cent was ill thought out and that closer to 2 per cent as a minimum was sensible to match marketing and advice with a good product. A £1,000 a year payment into a simplified product at 1 per cent would provide just £10 for the provider, let alone any advice services. By the time marketing costs are added, customer service costs and such like, it is very difficult for anybody to produce a profit.
Sandler has set a framework, not a blueprint. Maybe when we have full electronic trading, or end-to-end processing, a 1 per cent level of charge may be almost possible. Until that time, the customer has to pay for the necessary costs to allow distribution. A greater level is needed now to allow the market to thrive and the consumer to benefit.
Misys applauds any move towards simplicity and consumer education but we recognise that consumers value, and demand, face-to-face human interaction. The internet and other electronic mediums help the process but they are not the process. Human interaction needs to be paid for.
Members of the Misys networks, along with all IFAs, are actively helping to close the savings gap. We are committed to transparency, suitability and simplicity. But,and it is a big but, we need to allow enough margin in all of this to cover distribution and marketing.
Andrew Bedford is director of marketing at Misys Networks