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Inside edge

One of the most incisive parts of Ron Sandler&#39s report was his assertion that the current conduct of business rules excludes large numbers of the public from meaningful financial advice.

The current regime has allowed regulators to rule with the benefit of hindsight, forcing advisers to ringfence their advice with an expensive palisade of know your client forms, reports and reasons-why letters.

If Sandler has his way that regime will be retained for the wealthy. The British masses will be delivered to a parallel regime in which they will face an uneducated salesforce unable to advise on previous investments, unhampered by the need to provide suitable advice or keep proper records – or even getting to know their client.

The Sandler concept is that if the product is safe how it is delivered is unimportant. This approach is not new. Since 1945, the German Government has exercised a powerful influence on product design.

It was not long ago that a German equity fund was invested 90 per cent in Gilts by law. Product providers became an arm of the state compromising investors&#39 interests on the altar of national recovery. This created an industry that was devoid of initiative, full of “me too” low-performing products delivered by a small number of protected institutions.

Choice was not an option for the masses. Wealthy Germans always had the option to drive to Luxemburg or Zurich where advice and more investment-orientated offshore products were available from British, Swiss and American subsidiaries

More recently, with their Government retreating from welfare provision, ordinary Germans have begun to demand better returns and more advice. Full-time IFA and multi-tied firms have sprung up in competition to the part-time sales forces so beloved of German providers.

It is bizarre that just as Germany leaves this stifling regime we are contemplating joining it. The savings gap is not going to be filled by simple products. It will either be filled by compulsion or by those who can afford to save returning to the habit.

If the masses are to invest voluntarily they need certainty. They need to be certain that they are not investing themselves into their own poverty trap. They need to be certain that their funds are not going to be raided by stealth taxation.

They also need to be certain that their institution will be there to pay out when the time comes and that brings me to the 1 per cent cap.

To be fair to Sandler he only suggests that 1 per cent is a starting point. But providers are already facing an 8-year loss on every stakeholder case with no sign of the Government making them compulsory.

The central conundrum is that those who need the most advice have the least ability to pay for it and a whole forest of decision trees will not help that scenario.

It is not about selling simple products. It is about creating a process that allows a financially unsophisticated public to assess their risks, prioritise their spending options and then have the self-discipline to maintain their investments over the long term – and that means individual and specific advice.

If we are to simplify we could remove the confusion of current tax breaks replacing them with a single, easily understood saving and protection tax incentive.

It would be an amount based on income, which you can use in anyway you see fit to save and protect yourself and your family.

It could be extended to cover healthcare and school fees thus bringing much needed new money to these stretched sectors. Now that is one German idea well worth importing.

Garry Heath is chairman of Impartial Ltd

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