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Mismatch of the day

Just when it looked like things might be quietening down for IFAs from a regulatory point of view, yet another FSA review of the structure of advice has appeared on the horizon.

In a document seen by Money Marketing last week, vague plans were outlined to attempt – yet again – to match up consumer expectations and needs with the financial advice available.

The FSA has described the document as “blue-sky thinking”, which may explain why it is so difficult to pin down exactly what it is on about.

For example, at one stage it says: “Similarly regulated advice and disclosure requirements could be provided in a way that is clearly set in the context of the need. So there could be a single seamless process for regulated needs-driven purchases. Advisers could select to be qualified to advise across given needs categories and required to undertake a joined-up suitability test.”

Exactly what the regulator is trying to get at from this is not clear. But one thing is clear – the IFA community – which has seen an unparalleled amount of change foisted upon it by the FSA – is not about to see light at the end of the tunnel.

There is recognition of the amount of change that IFAs have seen but it is called “necessarily piecemeal”. The FSA says there is a need to step back and take a look at what can be done to make the regime more “efficient and effective in the longer term”.

It appears that the paper could be an effort to take forward both the examination review and the consumer education consultation. As part of the Sandler review, the FSA was called upon to devote more resources and efforts to promoting consumer education.

This appears to be the first indications of the direction it plans to take, with a more detailed and presumably clearer paper expected to be published before the end of the year.

Consumers lack awareness of what is available in the marketplace and what they are likely to get from different types of advisers, it says. Therefore, there is a need to educate them, which leads to the idea of attaching advice to stages of life.

But this would appear to make the assumption that everyone&#39s circumstances are similar and when they reach different stages in life they are going to require roughly the same types of advice.

Informed Choice managing director Nick Bamford says: “There is a clear mismatch between the regulator and what the consumer is looking for. They do not understand the relationship that consumers want with their adviser or, it seems, how the advice process itself works.”

Few would disagree that consumers lack a firm idea of their needs when it comes to finances but extending from there to yet another rejigging of the structure of the advice market would probably not sit well with most people.

Syndaxi Financial Planning principal Robert Reid says: “We need another review like we need a hole in the head. I just wish they would decide what direction they want to go in and sort it out.”

The paper discusses grouping consumer financial needs into life stages and educating them to seek out specific types of advisers at those points in their lives.

This could go one of two ways. One would see consumer needs broken into activities – household, medium-term and long-term savings, health protection and retirement, with related financial products associated with each.

The other would be by life stages, such as first job, first home, starting a fam-ily and retirement – again with products attached.

Alongside this is the notion of advisers deciding to specialise in particular areas. So, a consumer buys their first home and recognises there are advisers capable of sorting out their mortgage, repayment protection, house insurance and life or critical illness insurance.

It all sounds similar to what a mortgage broker does today.

Later, when the consumer is nearing retirement, they will want advice on sorting out their finances, thinking about converting their pension to an annuity, avoiding tax liabilities on other assets and investing in income-producing bonds or funds.

It all sounds rather similar to an IFA&#39s role.

On hearing about this latest plan, many in the industry are struggling to understand what the objective is.

Aifa director of policy Fay Goddard says: “I am really unclear as to what they are trying to achieve or what they are proposing that is different from what we have with IFAs at the moment. How will it affect the market that we have now?”

Most IFAs would say they offer an holistic, well rounded proposition, based on trust built up over a long-term relationship with the client.

Some may choose to become specialists in a particular product area or segment of the marketplace but the majority pride themselves on their ability to answer most needs.

The idea that they will be encouraged through exams to specialise and move away from being a generalist adviser is one that will probably be greeted enthusiastically by IFAs.

LIA head of public affairs John Ellis says: “I cannot honestly see how this concept works. Maybe one of the functions of circulating it is to admit that there is a lot more work that needs to be done. We will have to wait until the proper paper is published later in the year.”

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