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We are all hoping predictions that the economy is now in better shape and bottoming out of recession are correct. One thing that is certain is that the downturn has had a fundamental effect on people’s financial planning and on how they regard financial matters.

The FSA recently issued an occasional paper covering research it commissioned. Called Financial capability and well-being: evidence from the British household panel survey, it is available at:

The research focuses on the relationship between people’s ability to manage and take control of their finances and their psychological well-being. The paper’s summary notes: “Financial capability is not correlated with income; people across society require financial management skills to be in control of their money, regardless of how much money they have. Although financial management is important at any time, in the current economic downturn, reaching a wide swathe of the population is even more vital as an increasing number of people find themselves in difficult financial situations.”

As we should know, the FSA has four statutory objectives, one being to promote public understanding of the financial system. Show me anyone who can explain succinctly the whole of the financial system from the UK banking collapse to hedge fund activity. This is a huge undertaking and one I believe is unachievable as financial services are constantly changing.

It worries me we that have not seen any dilution or delay of the retail distribution review as a result of the downturn. Common sense dictates everyone would be better off seeing a whole-of-market financial adviser who acts on behalf of the client not the product provider.

I am not too concerned if the IFA, or “agent of the client” as Aifa has suggested, remains profitable based on a commission basis while the life and pensions industry continues to pay huge commissions which are often offset against time spent (fees).

The troubling thing about the RDR is that IFAs will need to move even higher up the value chain to higher net-worth clients in order to survive the incumbent costs of raised capital adequacy, QCF level 4 examinations and TCF.

High earners who are short on disposable income, due to family commitments and the like, will be forced to seek a sales route most likely with a narrow product choice as they are not tolerant to fees.

This is not the ideal in improving financial capability.

I still remember the last time we had a regulatory change to distribution – depolarisation – when 500-plus Bradford & Bingley advisers went single-tie overnight to Legal & General. Thousands of loyal B&B clients continued to see their ex-IFA, now single-tie adviser, blissfully unaware of the change in status.

Of particular concern is the inability of IFAs that are not whole-of-market to advise on top-up or switches on other providers’s products held by the client. RDR could have similar implications, with a mass exodus of independence if left unalter ed.

The FSA research concludes with the sobering thought that financial incapability compounds the already psychologically harmful effects of unemployment or divorce.

Kim North is director of Technology and Technical,


Selling points

George wakes up in the morning and says: “I don’t want to go to school today, all the teachers hate me, the kids in the class hate me, the caretaker hates me, even the lollipop lady hates me.” Susan replies: “But darling you have to go to school, you’re the headmaster”.

A growing concern

Group Sipps may have lost their sheen to companies’ top earners since the Budget, but that is not enough to stop their continued growth. In an era when boardroom pay is under scrutiny like never before, it must surely be harder for decision-makers to let their own vested interests override those of the company they run.


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