The RDR seems intent on focusing on adviser distribution and how it is paid for. It seems keen to avoid addressing the issues caused by the fastest growing and most profitable sector of distribution – non-advice conducted over the web and phone.
I am not sure why that limitation is accepted by anyone, least of all the team conducting the review. Their apparent lack of interest may be because there are comparatively few complaints about non-advised sales although the reason for this is surely because lack of suitability (in its FSA context of something being good advice) is the cause of a huge proportion of complaints and that is one thing you cannot complain about if you have not taken advice.
So Aifa’s Manifesto for Advice is a very necessary and well-timed intervention. If it succeeds in getting advice revalued in relation to alternative selling methods, then it will do consumers huge good.
I hope it focuses not on how a perfect adviser should look but on demonstrating the good that advice does when compared with non-advised selling. The difference is vast. For example, in protection, it has been shown that 70 per cent of buyers improve their non-advised decision when later getting advice.
If the RDR were to focus one of its streams of review on non-advised selling, as it should have from the start, it would find a huge amount of half-hidden consumer detriment. First, it would find that advised sales often cost less than non-advised sales. This might cause it to ask why the cost of advice must be fully disclosed but the cost of non-advice need not be. It might feel that it is facile to point out that advice is not free when neither is any non-advised purchase. One can argue that in an FSA context, advice is free when it leads to lower actual charges and costs than non-advice does for the same product, as it routinely does in protection.
Going further, it would find substantial consumer detriment being caused by the encouraging and facilitating of bad consumer purchasing decisions by poorly understood information on non-advised sites. Advisers get told about it every day by those who come to us having messed up their DIY planning job. With non-advice now booming, it will not be long before more people have been ruined by their own non-advised decisions than ever were by advised decisions. Indeed, with the growth in the various gaps in financial provision eerily tracking the growth of non-advice, perhaps that is already the case.
Non-advised selling does not cause consumer detriment by dishonest practice of a sort the Financial Ombudsman Service can punish. It does this by not pointing out its limitations clearly enough and by allowing consumers to take good information out of context and make really bad decisions – the sort that would get an adviser straight in front of the FOS.
Non-advised selling is a perfectly proper route to market, the issue is simply that the FSA allows it to routinely overstate its benefits and understate its drawbacks. That is what the RDR and the Manifesto for Advice should change.
That non-advised selling should operate on a caveat emptor basis while the RDR seeks quite clearly to further the grip of the caveat vendor principle over independent advisers is discrimination in favour of that which all consumer groups and, indeed, the Treasury deem the worse of the two generic purchasing methods.
Tom Baigrie is managing director of Lifesearch