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Interaction stations

Apparently, the FSA is unhappy at industry reaction to the RDR feedback statement. They appear to be suggesting that by not pleasing any particular sector, they have created an acceptable balance. Evidently, they choose not to consider the other possibility – that such antipathy denotes an awareness that the proposed actions cannot achieve the desired outcomes.

One of the less agreeable aspects of this farrago has been the explosion of self-interest groups clambering aboard the various bandwagons and jockeying for pre-eminence. Many have contrived careers out of change and amazingly they always seem to have an easy answer for the industry’s ills.

Such antics cast shadows of despair, especially when each group then pontificates about “professionalism”, “moving the industry forward” and other soundbites.

In fact, the industry seems to be losing sight of the RDR’s originally stated intentions and this latent myopia also extends to the FSA. Hidden within the original RDR document was an acceptance of some of the financial troubles afflicting UK plc.

To ensure that Money Marketing readers do not develop similar optical complaints, I will jog memories as briefly as possible. Consumers fail to interact with advisers, primarily consumers in the lower socio-economic groups.

Retirement planning has been battered with consumers distrusting the word pension. Advisers no longer prospect for pension business, apart from high-net-worth clients and those investing lump sums. The protection gap was widening even before the recent economic ills, with Swiss Re’s latest report confirming that new business remains depressed.

It is indisputable that these are the targets that the RDR should be aiming at. Somehow, we have been caught up in a mire of arguing and positioning, with the ultimate result that the suggested ways forward will fail to solve any of the problems outlined above. Over the next few columns, I will look at these problems one by one but let us start with the failure to interact, which the FSA conveniently blames on consumer distrust due to commission bias and historic misselling scandals.

Currently, stakeholder pensions pay little commission so do I see queues of excited consumers outside my office? Like most financial solutions, pensions have to be sold because engaging with advisers is not an exciting prospect. Most consumers possess a scant knowledge of these matters and exhibit a preference to leave things that way.

To alter consumer behaviour, a fundamental change of mindset is required. The fear of a penurious retirement is pushed aside as it involves thinking and, well, there is always tomorrow. The state will look after me anyway, right?

Commission, whether high or low, is not a determinant of buying behaviour. If it was, then the dreadful value plans of the 1980s would never have been sold by the bucketful. The reality is that unwilling consumers have to be sold the concept of problem and affordable solution.

Do not try and protect them from misselling. Instead, protect them from bad-value products which, incidentally, does not mean we have to turn to stakeholder designs.

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The new 45 per cent income tax rate announced in the pre-Budget report caused many a journalist to scurry for their pen, keyboard or dictating machine to pour out their hearts on the merits of investing in a registered pension scheme, including the apparently obvious opportunity for salary sacrifice with even greater tax and National Insurance benefits than under the current regime.

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