It was inevitable the Government would come under increasing pressure to relent on some of the reforms introduced by the RDR. My own view for some time has been that life companies, particularly those domiciled in Europe, South Africa and North America, would not tolerate indefinitely having their control over distribution artificially restricted. The concern over the advice gap has added weight to their argument.
There is no doubt the RDR brought about some much needed reforms that curbed the worst excesses of the old regime. But it should, and must be possible, to retain those safeguards without jeopardising better financial security for the majority of the population.
There is no single solution – a variety of changes are required. But fundamental to reform is to encourage the re-establishment of the tied salesforce. This in turn means the commission system of remuneration.
There has to remain a legal distinction between the independent adviser and the tied agent which should be rigorously policed by the FCA. The former should still be required to charge fees paid by the client to reinforce the fact that the adviser acts only on behalf of, and in the best interests, of the client. The tied agent is just that, tied to a single company and is remunerated for selling the products of the employer.
As with any commercial operation, the company sets the levels of salary or commission including incentives. The onus on the regulator is to ensure it is the products that are policed and are appropriate to the customer’s needs and that the sales methods employed are ethical. Surely enough evidence has emerged in the past to know what is definitely wrong.
Having spent all my working life with the independent sector some may find it difficult to understand my argument. The truth is experience has taught me that providing we return to polarisation the truly independent adviser/financial planner has nothing to fear.
When Transact first started there were many who doubted the IFA could survive charging fees. That was fairly quickly proved not to be true. Today, there are thousands of advisers who declare not only their own fees, but also those of the platform and the fund manager.
The FCA should not seek to interfere with that process. Whether those fees are on an ad valorem basis or not is a matter for agreement between the adviser and the client. The FCA do need to check periodically that the advice being given is explained clearly and is suited to the client, particularly in terms of risk.
Before the Financial Services Act 1986 it has been estimated there were more than 200,000 tied agents, including those working for the industrial life offices. The cost of collecting premiums was unsustainable and many salesforces were disbanded or severely reduced.
With modern technology some of those obstacles have been removed and it is time for the sale of savings, life assurance and pensions to be renewed on a mass scale if younger generations are to have any hope of a comfortable future.
Malcolm Murray is chief executive of MFM Management Consultants and former head of marketing at Transact