The FSA's menu for the pricing of financial advice has been given a mixed reception by the industry.
The FSA and Aifa are her-alding it as the key to moving ahead post-depolarisation but providers and IFAs seem split over whether the menu is a good thing.
The menu was finally rel-eased two weeks ago, a year after the announcement of its adoption, but the lines have been drawn for months. LIA head of public affairs John Ellis says it is important to remember that the menu was in answer to January 2002's CP121, which recommended the controversial definedpayment system which would effectively have made all IFAs charge fees.
After a backlash from the industry and dire predictions that the DPS would lead to the demise of the independent sector, the menu was created by Aifa, IFAP and a steering group of providers and submitted to the regulator as an alternative. The FSA agreed to take it on board and in January 2003's CP166 announced that it was to form the basis of the pricing disclosure.
Will this latest incarnation satisfy both IFAs' concerns and the FSA's desire to make the charging structure for financial advice more transparent?
FSA spokeswoman Louise Buckley says: “Its main objective is to make it clear up front to consumers what the cost of advice is and to facilitate shopping around and negotiation by consumers. It should also help to reduce the potential for commission bias.”
IFA network Falcon Group chief executive Allan Rosengren quips that the industry was not asking for a menu, it simply wanted common sense to prevail. He says: “We will be happier when all this change and disruption is finished.”
However, Rosengren says the menu seems workable, even with the “exceptional amount of overhead”.
M2 Financial managing director Mark Howard believes IFAs have what they want although he believes the FSA has once more passed the buck when it comes to education of the consumer.
He says: “It gives IFAs a big opportunity to make hay. As ever, the FSA has managed to put together a complex document out of a simple one and it will once again be up to IFAs to educate the consumer but this helps the IFA community because it adds to our advantage to be the ones that help the consumer.”
The most vocal complaints levelled against the regulator up until now have been the delays in delivery. Almost unanimously, the industry agrees that the FSA has held on to the menu for far too long as it has struggled to decide how to apply it to the tied sector.
Syndaxi Financial Planning director Robert Reid says he is not convinced that the long delays were necessary and many of the excuses given by the FSA do not add up.
He points out that even though one of the regulator's excuses for the delay has been implementation of the EU's insurance mediation directive, the FSA has known about the IMD for a long time.
He says: “The FSA's delays demonstrate a total lack of joined-up thinking. They seem unable to plan around more than one thing at a time.”
Ellis says now that the menu is out, the industry at best is curiously surprised at the detail the FSA has come up with and at worst, critical of the regulator for producing an “overly complicated, unusable menu”.
Reid says: “When the key object is to provide transparency and better communication with consumers, it is not well served with such an overlycomplex document such as the menu the FSA has produced.”
Fee-based IFAs are more upbeat about the menu than their commission-earning counterparts as they will not have to demonstrate how their charges compare with the market average in the same way.
The regulator says because firms charge fees in a variety of different ways, a meaningful comparison of rates with the market average is not a viable proposition to help consumers understand pricing.
Fee Based Advice sales director Nick Peters says: “The menu is great for us. It clearly shows the consumer that commissioned-based financial services is a sales process that has nothing to do with advice.”
On the record, the banc-assurance and tied community is also upbeat about the menu, embracing the “level playing field” it creates. However, senior sources say much of the tied industry is unhappy with the FSA's stance on commission equivalence disclosure, a comparison they were keen to avoid.
The issue delves deeper than just the like for like comparison. IFAs with big stakes owned by providers will essentially have to disclose commission equivalence even though they may not strictly be tied.
One senior industry source says: “This is a serious dis-appointment in the rules. It assumes outright that IFAs owned by providers operate as tied agents. This is absol-utely not the case.”
For the past two weeks, Aifa director Paul Smee has been upbeat about the menu, unsurprising given that it has been a long-standing project for Aifa.
Smee says: “Clearly, when there is price transparency across the industry and greater choice between different parts of the market, it is better for the consumer. The industry should not get bogged down with detail. It needs to give the menu the opportunity to show its worth.”
But even Smee admits that the menu's manifestation under the FSA's control is far more intricate than he expected but remains adamant of the concept's inherent worth.
He says: “IFAs should look at the big picture. I am not convinced by arguments that the menu is flawed because of its details.”
But other trade associations and professional bodies are lining up against the menu.
The LIA has sided with the many financial advisers who are frustrated with the menu's complexity. Ellis says: “The whole thing is needlessly complicated and will leave consumers none the wiser.”
Ellis says he is concerned with the amount of effort that will be required to keep the menu up to date. He says: “Collecting data for market averages and commission equivalence will take extraordinary effort and will be time-consuming and once it is all put together, it will be out of date before it hits the streets.”
Complex detail inevitably brings loopholes. Although direct salesforces will need to disclose commission equivalence to customers, cash directly provided to agents for IT and back-office support need not be included in the calculation which one industry source claims leaves an attractive hole for innovative account-ants within providers' finance departments.
Providers also have their concerns. Royal London head of external communications and research Gareth Evans believes the menu will make it less attractive for providers to sell their own products and the industry will see providers gradually move to the distribution model of high-street banks which have entered into bancassurance deals with providers.
Scottish Equitable head of business development Steven Cameron, who was on the 2002 steering committee which designed the menu proposal, says the initial proposal was much simpler and he believes the average consumer will not get as much out of it as they could have.
He says: “The issue is to keep the consumer at the heart of the menu. What we have been given by the FSA is workable but it will be up to providers and IFAs to make it work for the consumer. The regulator has found that somewhat of a challenge.”