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Make the message clear

The news that Tony Blair is committed to leaving office next year will be viewed by many as a sign that a new beginning is on the way. A New, New Labour if you like.

The move to fees is taking a similar route to Blair’s handover of power to Gordon Brown. We have complaints from provider CEOs that indemnity commission simply cannot go on. Then lo and behold, a new indemnity product hits the streets.

The move to fees has it roots in the radical repricing of retail products. I was involved in a story that appeared in Money Mail which revealed that regular contributions into a Sipp needed careful research, since one company was charging as much as 13 per cent level load. Its PR team called me after it appeared, not to correct me but to express its disappointment that it had been highlighted.

We need to move to pure products. If we then want to add advice charges, we can. This fee compensation, as trailblazed by Provident Life, was simply before its time. But that time has now arrived.

The same is also true for investment funds, where the telephone-number earnings of the fund managers are ready evidence of charging structures which need a serious rethink.

When you consider the track record of many of the managers, the additional performance that they bring is not always in the positive and many passive funds offer better all-round value.

Another area is the ability of firms to offer limited or focused advice. Under Aifa’s new proposals, advisers’ clients could sign a disclaimer that would enable an adviser to, for example, advise a client purely on how best to invest a £60,000 inheritance without having to worry about asking about their other financial planning needs.

This is a good idea in theory, although with the constant tweaking to legislation and Government policy it will be difficult to ensure advice can be compartmentalised in this way without affecting other areas of financial planning. For example, the recent changes to pensions make its interaction with IHT likely, if not inevitable.

Engaging in a clear, defined brief is a good way forward. We must all ensure that our brief is fully understood by the client, for example, what we will and won’t do.

Using engagement letters is but part of the defence mechanism. We need to ensure that no one has unrealistic expectations, nor must we encourage, such expectations.

This proposal flies in the face of the Financial Ombudsman Service’s current stance, which is that focused advice does not exist. Perhaps the new stream of generic advisers will enable advisory firms to give advice if the findings of the generic adviser can be accepted as the basis of their advice? If the non-generic adviser needs to go back to square one, the advice gap will simply grow over time.

We need to know if the FOS’s role is advice prevention or cure?

I can support the latter, not the former.

Advice is necessary. Fat, uneconomic products from underperforming fund managers are not – neither are promotions which do not make clear the level of risk they contain. There may be a maximum annual management change for stakeholder but that ignores the charges built into the fund pricing mechanism.

So, will Gordon advance to Number 10? I would suggest that his nationality will prove the casting vote against him. If he does succeed, then we are in for a tough time, given the recent pronouncements of Mr Ed Balls on the value of advice.

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