If you believe the stereotypes, the North is all about flat caps and whippets: a land populated by sensible types who do not stand on ceremony and who tell it like it is.But do such stereotypes exist? And if they do, do they alter the way people go about their financial affairs? More importantly, does where you locate business determine what kind of business you will predominately write? A look at IFA businesses based in and around Manchester has thrown up some interesting trends. According to a recent survey by National Savings and Investments, there may be some truth in the matter as residents of the Northwest came out as the most conscientious savers in the UK, putting aside 7.73 per cent of income every month or 167.27 out of every 1058.10 earned. But what does the IFA community think? Is this a reflection of the real situation? Key Financial Planning managing director Dominic Mansley certainly thinks there is some truth in the idea of financial prudence, if not that there are higher levels of saving. When it comes to certain products, he says there certainly seem to be a regional preference, and cites protection products in particular. “Some 75 per cent of clients do take out a protection option. I know that is a high figure from speaking to other IFAs in other parts of the country. Whether that is regional variation or a result of the work of Key Financial Planning I’m not to sure,” says Mansley. “But there is an attitude that people are careful with their money.” Landmark Financial Planning director Eric Mowinski is another adviser who says many of his clients are careful with their cash. Although this may be due to their general attitude to investments, Mowinski says this is also as much about the value of funds available to invest and age as it is about regions. “We tend to think that the value of the assets available to people has a lot to do with their outlook. This is probably a little bit lower than in some other parts of the country, and generally we find our clients have a cautious to medium risk approach. There is very little interest in higher risk. Investments such as VCTs are not really in demand,” he says. Ark Financial Planning director Philip Stevenson says that while overall levels of affluence might be lower than some other parts of the country, certain problems are national ones. “I would imagine there is a greater need for inheritance tax planning down in the South,” he says, but adds that other areas, such as mortgage lending, show all too familiar patterns. “The younger end of the market are interested in lenders who offer higher borrowing multiples but I think that is nationwide. Where we are you can’t buy anything for less than 140,000.” Mansley says that property investment is an area that is also keeping him busy. The regeneration of Manchester has changed the city beyond recognition, with much of the development being centred on turning the former industrial buildings in the heart of the city into designer flats. Investors have not been slow following up this boom and the buy-to-let market is strong in the city. Mansley says that in 1991 there were only 500 people registered as living in the city centre, but by 2001 there were 15,000. “You can’t find an industrial building or a warehouse that hasn’t already been converted,” he says. “A lot of the buy-to-let investments we are involved in has been in these new developments.” Derbyshire Booth Financial Management managing director Greg Heath says buy-to-let investors in the North-west are also more likely to be long-term investors rather than speculating on rapidly rising prices. “In the North property seems more stable. On the buy-to-let side people view property as a solid investment. The people that we see tend to be in it for the long term.” Many advisers say the changing nature of their client base does make it increasingly difficult to generalise about their clients on a geographic basis. Referrals and technology mean that many advisers now have a large number of clients who live outside of their geographic area. Both Mansley and Heath say that about 60 per cent of their clients come from the local area with the remainder spread across the country. The spread of clients becomes even more noticeable for specialist businesses. Purplecircle Pensions managing director Mark Andrews says some of his clients are based as far away as the south coast. Technology now means that physical distance between a client and adviser has ceased to matter. Andrews says: “With the way modern communications are, we are only at the end of an email.” Andrews is even offering internet video conferencing for clients who have the facility and says that geographic location is becoming increasingly less important to how successful your business is. “What is the point of driving all the way to the south coast when the client has a webcam and I’ve got a webcam,” Andrews asks. And Bankhall CEO Peter Mann also says that it is the quality of the advice given, rather than the location, which determines which businesses will be a success. Mann says: “There is no North/South divide. We know from our members that it doesn’t matter where you are in the UK. If you are a good IFA you will prosper.” Ifirst came across churning in the mid-1980s as a broker consultant working in Colchester for General Accident. Having arranged a remortgage for a client only 18 months before, the adviser arranges another remortgage and ditches a 25-year General Accident low-cost endowment in favour of another 25-year plan with General Accident. He managed to convince himself that the lender required one policy for the whole of the mortgage and there was no regulation to challenge him. I doubt that the replacement policy exists any more than the adviser, the GA or endowment salesmen. How times have changed. So, having seen almost 20 years of regulation, where Fimbra became the PIA and now the FSA, why are we suddenly talking about churning all over again? The recent debate on churning can be traced back to September 2002 when the FSA issued what was the latest in their series of occasional papers – OP18. I have to say that the other 17 had passed me by, including OP4 Plumbers and Architects: a supervisory perspective on international financial architecture. Sadly, OP4 had nothing to do with plumbers or architects. OP18 was entitled, To switch or not to switch, that is the question, and thankfully talked about switching. It analysed the potential gains from switching pension provider following the introduction of the 1 per cent stakeholder regime and focused mainly on product charges. It suggested that while one-third of mortgages were remortgages and 2 per cent of consumers switched current accounts, fewer than 1 per cent of personal pension policyholders switched provider. There was little evidence of switching at the time so churning was clearly unlikely to be a big problem. I was planning to bring this figure up to date but the ABI press office was not able to offer any assistance. They were happy to refer me to the FSA, who were helpful but they are regulators, not a statistics service, so I gave up my search. OP18 was not a “churners charter” as I heard it once described. It took 35 pages to reach the following conclusions: Some people will be better off if they switch policies and the quicker they switch, the better off they will be. So if we ever see an increase from the 1 per cent switch figure mentioned above, will this be strong evidence of excessive churning? To answer that, we need a definition of churning. OP18 suggests that churning is “where consumers are advised to switch purely to generate commission for advisers”. Unfortunately, churning is not defined in the FSA rules (COB). I searched the online version for the definition of churning without success and called them to confirm it does not appear. Searching the FSA site as a whole, I managed to find a consultation document with a definition as follows: We use the term “churn” to describe the proscribed practice where a consumer is advised to cancel a perfectly adequate and “fit for purpose” product he has and replace it with another. This results in the consumer suffering two sets of charges and hence consumer detriment. The key phrase for advisers is “fit for purpose”. There is scope for debate on “fit for purpose” and I would be careful about declaring a plan that you sold in the last few years as being suddenly unfit for purpose. To qualify as unfit for purpose, something significant will need to have taken place to the product, the provider or the client, otherwise your original choice of product could be questioned. There are a number of examples where plans are easily recognised as unfit for purpose but advisers should offer a review and that will start with a comparison of product charges. If you find that the client would be worse off as a result of a switch, it is important to find out how much extra growth is needed in the period to retirement to match benefits in the old plan. Armed with the additional growth rate, the next logical step would be to compare performance. However, given that “the value of investments will rise and fall and past performance is not necessarily a guide to the future”, you must be a little careful here. Although OP18 cited “range of funds” as a potential reason to switch, it also pointed to evidence that there is no investment performance pattern that can be usefully employed. But more recently, FSA Chairman Callum McCarthy’s September 16 speech in Gleneagles included “dissatisfaction with current investment performance” as an “entirely legitimate circumstance”. Personally, I do not think that we have a big problem with pension churning in the UK. However, if you take “fit for purpose” as a reasonable test, there is potential scope for growth in the amount of business being switched. In particular, I would cite with-profits policies as among those most likely to move over the next few years. If you have a clients in with-profits plans with low or no equity investment whatsoever, you can’t ignore them. In the same Gleneagles speech, McCarthy stated that there was a dearth of advice in that area. You have been warned. Ignoring the debate, you should not be afraid to give advice. Your terms of business probably state that you provide regular reviews of their client’s affairs, so get on with it. If some providers are naive enough to continue offering products that provide no profit to them, that is their problem. You act for your client and not the product provider. You will be judged on your advice so offer reviews. Listen to your clients and, above all, make your advice suitable.