What are the essential themes we need to present to the Sandler review? Essentially, the thrust of what the LIA is saying is that commentators are right to point to weak or patchy consumer influence in our business. What's new? The insurance and related industries have been tackling these issues for the best part of 200 years.
Yes, it is true that many consumers do not want to address protecting themselves against future events such as their retirement or death. The insurance principle is not widely understood. Of course, the well-informed and the well-motivated consumers will take the trouble to arrive at a better understanding of investment, insurance and savings issues. They may even monitor their holdings to see whether they are still on track. But we are talking about a fairly small segment of the population.
Most people have many other pressing matters on their minds and the decisions involved in pension or investment planning are often complex. So, the industry has developed a device for achieving outreach to the population. It is called the financial adviser. The financial adviser is able to bring to the attention of individuals that they have long-term financial needs and that there are solutions to those needs if action is taken at the right time.
This process potentially gives a great deal of power to those who control distribution and to the intermediaries who are the agents of the distribution process. Successive Governments have progressively put in place regulatory rules to ensure so far as possible the integrity and knowledge of those undertaking distribution, to regulate the way in which business is conducted and to provide fall-back machinery if it goes wrong. The alternatives of DIY activity are there but they are for the better informed and for the more wealthy.
So, if we are concerned that the population are not getting enough financial services, it would seem a more direct route is to strengthen the IFA sector than worry about comparative tables, consumer education and so on. Consumer education is valuable but it has limitations and the recipient must be willing to hear the message. Distracting discussions about polarisation and fees versus commission are a sideshow to the main issue of outreach to the customer.
The FSA, which appears to be skilfully handling the arguments in the polarisation debate, is in favour of extending adopted products rather than scrapping polarisation – exactly what we suggested last year.
The fees versus commission debate has been overtaken by practices in the market. Most IFAs will tell you they offer an option to their customers. What is so great about fees, anyway? It is just as possible to missell on the basis of fees as it is on the basis of commission. The real question is the standard of service.
How can we build up the service of the intermediary? One way is by emphasising an appropriately tested level of knowledge so the public can have confidence that advisers know what they are doing. We need to rationalise and modularise the exams. We need to tackle the question of updating and reviewing knowledge.
One structure of recognition for attainment and retention of knowledge is needed, not an alphabet soup of post-nominal letters. And we need some more simple indicators so that the public can recognise a quality advice service.
If the effect of the 1 per cent world is to remove financial advice from a large section of the public, we must have got it wrong. Is there a simpler service we could offer that would improve outreach but maintain suitability? The LIA will be developing these themes over the coming weeks.
John Ellis is head of public affairs at the LIA