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Knight rdr

Leaving last week’s FSA conference on the retail distribution review, it was very obvious to me who was the clear winner of the contest – Stephen Hadrill of the Association of British Insurers.

On stage he played his part as The Joker, in a double act with Angela Knight, of the British Bankers’ Association, in the role of Catwoman. It is clear that they appear to have persuaded the FSA that it is desirable to provide insurers and banks with a soft-touch regulatory regime to enable them to sell financial products to the mass market without the inconvenience of a professional advice process.

With the FSA now passing the RDR forward for implementation, it appears that the best that can be achieved now will be minor amendments to the actual rules rather than the broad concepts of how the new regime will operate.

Aifa has clearly been torpedoed by the regulator choosing to put the issue of capital adequacy back on the agenda, just as they were rolling out a distribution review which clearly tilts the playing field dramatically to the advantage of banks and insurers, at least in the context of the mass market.

Anyone who witnessed the response of the Dark Knight, Chris Cummings, to the last-minute regulatory compromise, will recognise the tremendous value they get for their Aifa subscriptions.

Sadly, I suspect that it will be a step too far even for Cummings with his negotiation skills to persuade the FSA to change its position on both capital adequacy and simplified guided sales. This time, I fear Batman may be defeated.

There has long been a view in certain IFA circles that the FSA finds it inconvenient to have to supervise so many small independent firms.

Increasing capital adequacy is a convenient way of forcing smaller firms to become part of bigger groups and may prove manna from heaven for the networks.

Ironically, of course, the banking community are nicely recapitalised, courtesy of the taxpayer. Presumably, IFAs will not be able to apply for similar assistance. A cynic might even suspect that now that the Government is such a significant shareholder in banks it will want to do all it can to enable the businesses they now part own to make profits.

It is clear there is a desire to move the IFA channel into a niche position servicing only the mass affluent market and above while banks and insurers will sell low-cost product to the mass market.

To be fair, the IFA community cannot claim to have galvanised large numbers of average-income consumers into buying financial investments and perhaps there is an argument for giving another channel a chance.

Perhaps these developments should be seen in the context of a further evolution of the nanny state. If the banks and insurers are given a soft-touch regulatory option that allows them to sell products to consumers on the grounds that it is something that consumers should do rather than something they want to do. Perhaps, given the total collapse of the savings ratio in this country over the last few years, this may be a good thing.

As Money Marketing editor John Lappin pointed out last week in his summary of Treasury Economic Secretary Ian Pearson’s speech, the lack of an effective savings policy is one of the hallmarks of New Labour.

I will be fascinated to see how the new rules address the suitability of savings in vehicles which will do nothing other than reduce an individual’s entitle- ment to state benefits. Perhaps the reason that IFAs have been excluded from the new “guided” option is that most have too much integrity to sell a consumer a product that would only benefit HM Government. It is hard to see the banks having any such scruples.

If the Government’s objective is to deliver a sales process that is simple enough that the cost of the advice is not a barrier to mass-market consumers, why not allow this process within the independent channel as well as sales?

It is inevitable that a simplified sales process will in most cases be strongly driven and supported by technology. This technology could be as easily deployed via an independent channel as the sales route.

Having been highly critical of Stephen Hadrill in the past, views which I stand by, I must congratulate him on the fact that while he lost a few of the early skirmishes, he appears to have won the war.

He wanted his constituents to benefit from a clear regulatory advantage over independent advice and the FSA appears to have granted his wishes.

It is, however, unfortunate, to say the least, that the loser in all this appears most likely to be the consumer. This point was not missed by Lord Lipsey last week who appeared to be the only other dissenting voice on the platform after Chris Cummings.

After many years of waiting, much of the infrastructure to enable advisers to use low-cost technology-driven methods to service consumers electronically is now in place. This will clearly help the insurers and banks as they reinvent their direct salesforces in the months ahead.

I can imagine many software suppliers must have been rubbing their hands with glee at this prospect but the very same technology as will be used to support the sales advisers would work just as well for independent guided advice.

There are a number of significant developments under way at this time which will increasingly enable firms to compare and contrast not just different providers offering the same product but also scientifically to compare the risk level of vastly different products.

This is exactly the sort of automation that could help an independent channel present a better option for consumers using a guided advice process than can be achieved by a bank or insurer offering one or a small range of products.

Making it easier for citizens with modest incomes to be able to purchase affordable savings product is an entirely laudable objective and deserves to be supported. However, to exclude the channel that has the greatest levels of customer satisfaction seems an obvious, but very avoidable, mistake.

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