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Michael Folger

More than a passing resemblance to Paul Newman, don&#39t you think?” asks FSA


press officer Jackie Blyth as she hands me a photo of director of


investment business Michael Folger, a piece of information which is duly


filed in case he needs to be charmed.


But it turns out that such journalistic tricks are not needed. He is the


one who does all the disarming with a few winks and a steady gaze. Just the


sort of social skills you would expect from a man who has mixed with some


of the most powerful people in the country during the course of his career.


Folger, 51, spent 14 years at the Treasury between 1971 and 1986. As head


of the economics briefing division, he was responsible with coming up with


“killer facts for Mrs Thatcher&#39s handbag” which he delivered to her on a


postcard.


His other major role at the Treasury was overseeing the defence budget –


but that is a subject he cannot talk about for another 30 years under the


Official Secrets Act.


Like a true civil servant, he refuses to be drawn on his political


orientation, saying he “votes for common sense and sometimes the wrapper


changes”.


But the thrill of public office eventually wore off and Folger went over


to the private sector in the mid-1980s when he joined the London office of


investment bank Dean Witter in the Eurobond division.


He says: “It offered a different set of experiences – I arrived in Angola


during the civil war, for example – and the salaries were better.”


In 1991, he was headhunted for the position of managing director at Nirex,


the radioactive waste specialist. Folger says he was chosen for being the


only person in the country who understood a balance sheet, how the


Government worked and basic phy-sics, which he studied briefly while at


Selwyn College, Cambridge, before switching to economics.


IFAs might think his involvement with such a disaster-prone industry stood


him in good stead for his next career move to the FSA.


What attracted him to the role? “I was intrigued by the FSA and thought it


would be exciting to bring together different cultures into one. I also


have to balance statutory objectives and consumer thinking with companies&#39


needs to make a living.”


The FSA&#39s investment business division supervises some 6,000 financial


services firms, including IFAs, on behalf of the self-regulatory


organisations, the PIA, Imro and SFA.


It also has the main responsibility within the FSA for policy on the


conduct of investment business, including polarisation, and preparation of


the conduct of business sourcebook, which sets out the rules and guidance


which will apply once the Financial Services and Markets Act comes into


effect.


Does he share IFAs&#39 view that the burden of compliance is too great at


present? He says: “I hope it is not a universal perception. I am aware that


the pension review was very painful and bruising and we hope to get


busi-ness right first time in future.


“In time, we want a constructive relationship with the IFA sector and plan


to move away from an adversarial one by working with the grain of the


industry. That includes dealing with the rise of the more demanding


consumer.”


But IFAs do not seem too willing to extend the hand of friendship. They


view the regulator as “bureaucratic”, “heavy-handed” and “threatening”


although they do say they look forward to the “FSA in its new shape” or, as


one puts it, “a grown-up regulator”.


Since joining the FSA in June 1998, Folger has led its approach to


specific issues such as mortgage endowments and stakeholder pensions, which


are still high on the FSA&#39s list of priorities.


Folger says one of the biggest challenges with stakeholder is getting


people interested in pensions, a fact borne out by recent research into


decision trees which saw consumers abandon them through boredom.


He says the Government is planning a campaign to publicise the low-cost


product and the FSA&#39s consumer division is compiling an information


package. But he warns that employers will also have to get in on the act if


stakeholder is to succeed.


Folger says the FSA will be publish its findings on endowments in the


autumn after the reprojection letters currently being sent out – three


million so far – have had their full effect. He says: “We are pleased


people are not panicking and cashing in their policies.”


A personal challenge for Folger is finding “25 hours a day”. The 12 hours


he spends working each day are taken up by a constant round of meetings and


reading in order to keep abreast of policy.


His colleagues confirm this, calling him hard working and focused.


Perhaps the nature of his work is why he takes refuge in woodwork at his


home in Dulwich. He explains: “I enjoy working with my hands. Woodwork is


something I can have within my control that does not involve going through


six committees.”


Folger also gets wrapped up in looking after his two boys, aged eight and


11. He is “not currently married” although he has tied the knot twice in


the past and does not rule out a third time.


As for what else lies ahead, he says: “I would like to be remembered as


someone who makes a difference, including at the FSA.”


DOCE:


DOCB:


SRCE: Money Marketing


PDAT: 060700


WRDS:


SCTN: Technology


PGNO: 36


RANK:


HDLN: Supermarkets will not leave IFAs on shelf


SBHD:


BYLN:


TEXT:


It seems that every time you turn round, someone has opened a so-called


fund supermarket.


Generically, this is a concept that allows investors and IFAs to access


managed funds from a wide range of providers via a single route.


Fund supermarkets are, of course, yet another example of new methods of


financial management being imported from the US where, according to a


recent report by Cerulli Associates, they now account for around 80 per


cent of all new fund inflows.


Their share of all mutual funds under management in the US has tripled to


9 per cent in the last three years.


The Cerulli report goes on to predict that, by 2005, similar organisations


in the UK will account for 35 to 40 per cent of net inflow to mutual


funds.


Forrester, which has also examined this issue in detail in its recent


report, Insurance Supermarkets Arrive, predicts a more conservative market


penetration but still ascribes a 20 per cent market share to fund


supermarkets by 2005.


The US market is dominated by two major players, Charles Schwab and


Fidelity. Cerulli is suggesting that although there will be in excess of a


dozen such services open by the first quarter of next year, only four or


five will survive.


I do not believe these predictions take sufficient account of the


differences bet-ween UK and US distribution channels and the very vibrant,


not to say resilient, nature of the IFA community.


Both the dominant US supermarkets include strong direct equity services.


While individual share ownership has surged in the UK over the last 18


months, due in no small part to the existence of online share dealing,


there have been a number of reports recently to suggest that the decline of


dotcom stocks may now have reined in the extent of such growth.


But to underestimate the potential effect of supermarkets would be a grave


error. Fund supermarkets certainly present a challenge to the IFA community


in its position as the dominant distributor of managed funds.


The latest figures from Autif show that, in the year to May 2000, IFAs


were responsible for nearly 55 per cent of new managed fund business


although only achieving 41.6 per cent of sales linked to Isas.


Are fund supermarkets friends or foes? The answer is almost certainly


both. Supermarkets come in many shapes and sizes. Some, such as


Consolidated Funds, are only available via IFAs. Others, such as Fidelity,


are open to both the company&#39s IFA business partners and direct customers.


Egg has its own super-market for collective investments and will also be


adding share dealing.


InterAlliance&#39s site allows consumers to purchase funds but offers no


aggregation facilities as a supermarket. The recently launched


Virginmoney.com has at least as many supermarket characteristics as the


InterAlliance site but Virgin is keen to say it is not a supermarket.


Confused? Imagine what it is like for the consumer.


There can be no doubt that some of the so-called supermarkets seek to


replace the traditional IFA relationship. However, as Egg Investments


operations and systems director William Jones noted at last week&#39s


e-commerce Lunch Vox run by Mansion House Executive, running an internet


operation means you can do without the phone but you still need people who


can answer quickly and competently.


Even though many of the supermarket sites such as Egg are offering a wide


range of research and decision trees, I believe IFAs have the opportunity


to harness the power of the information offered in this way and complement


it with customer-focused advice as the best value-added proposition for the


client.


In the US, Charles Schwab has a very active programme, Advisor Source,


which directs customers with holdings of over $100,000 towards professional


advisers. Several UK operations are indicating that they will take a


similar approach and this could be one of the main services that IFAs might


look for in choosing their supermarket partner.


Equally, the supermarkets may well have a role in incubating the smaller


investor until such a time as they have sufficient investments to warrant


taking financial advice.


For the individual making a modest investment of £100 a month or less


into an Isa, either the adviser is going to be giving advice on which they


are not covering their costs or, if the advice is fee-based, the cost is


likely to be totally disproportionate to the level of investment.


In these circumstances, some sort of low-cost or even free guidance could


assist an investor before the level at which it becomes cost-effective for


them to take advice.


It is important to recognise that choosing which supermarket to work with


will probably be one of the most imp-ortant strategic decisions that IFAs


will make. Increasingly, the sort of technology services provided as part


of such partnerships will have a key effect on the management of the whole


IFA practice.


I foresee a day when this type of service could replace the need for many


IFAs to have their current small back-office systems. Such is the nature of


many of the services in planning that it will not be practical for IFAs to


spread clients across multiple systems. Asset allocation is a perfect


example of where this could occur.


Currently, there is a fair amount of pessimism around the industry over


the potential outcome of the London School of Economics report on


polarisation. This is not a view I share. Having looked at how fund


supermarkets are operated in other countries such as Australia, I believe


that a move to the white-labelling option could provide an opportunity for


the continued existence of an environment which allows IFAs to offer advice


on products from a wide range of different fund managers, without the


current polarised environment.


The concept of independent advice has served consumers and IFAs well but


the technology is increasingly available that may well make it entirely


appropriate to move to the next phase of financial planning. In such an


evolution, fund supermarkets would have a major role to play.

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