IFAs are to be subjected to another round of mystery shopping to examine the role that commission plays in selling long-term savings products. The difference is that this time it is not the FSA conducting the research but the ABI, which hopes the project will help build greater public confidence in the long-term savings industry.
Head of regulation and strategy Francis McGee says: “Our investigation will be in to the sorts of criticism that will not go away, in particular, relating to commission. We will be looking at product and provider bias, where there is more than a bias to sell a certain product where something else would do.”
So far, the IFA community appears to be largely untroubled by the news. Aifa director general Paul Smee does not think IFAs have anything to be concerned about. He says: “I believe there should be transparency about what IFAs do and how they are remunerated so I am not perturbed about this mystery shopping. IFAs should be proud of what they do as this should reveal how good they are, not how bad.”
Informed Choice managing director and Sofa chairman Nick Bamford believes if mystery shopping is done properly, it is a valuable tool in terms of understanding what happens at the interface between the client and the adviser. But he is keen that the research should look at a cross-section of the market including the self-employed, national and regional IFAs.
Smee hopes the research will be done in context of the menu. He says: “The whole thrust of the menu has been to make clear the cost of advice, along with the value of advice in context of the cost. I hope this research looks at the value of IFA propositions as well as their cost.”
The ABI says the research will focus on IFAs but will take in all distribution channels including direct salesforces. McGee says: “The whole project is multi-channel but obviously, in a polarised world, certain kinds of issues can only show up in the IFA channel.”
The mystery shopping will be carried out by Charles River Associates in conjunction with pollster NOP. McGee says: “Mystery shopping is only one part of the work. There is a good deal in this exercise that links very closely to the work that Charles Rivers has done with the FSA in the past but there is still econometric work that needs doing.”
He says there is still a lot of scripting to go through so the ABI can ask the right questions. “My guess is that it is not likely to start for a few months,” he says.
The ABI has also asked consultancy Booz Allen Hamilton to consider if there is scope for a new generation of customer services initiatives by individual firms or the industry as a whole, drawing on best practice in other sectors. McGee hopes the work will be completed in September and says the results will be published then.
Michael Philips proprietor Michael Both is concerned the mystery shopping exercise could be used to paint commission in a bad light. He says: “I do not see anything fundamentally wrong in doing mystery shopping but what are they hoping to prove? It depends on how they view commission. There is more codswallop spoken about how commission is a bad thing than about anything else in the industry. A client gets a very good deal when buying products on commission.”
Bamford is less sure, saying he thinks the exercise will uncover non-disclosure of commission taking place by some advisers.
McGee says commission has been singled out because it is the subject of criticism levelled at the industry. He says: “I think the public debate is around commission but I am not personally convinced that it is entirely justified. Our members do not have a particular problem with commission.”
The strongest reaction to the mystery shopping exercise comes from the Consumers' Association, which says it has very little confidence in the ABI coming up with objective results. Senior policy adviser Mick McAteer says: “It would take a trusted organisation to do a survey like this, not the trade body of an industry in which consumer confidence is completely undermined.”
Surprisingly, McAteer does not lay blame for the problems faced by the long-term savings industry at the feet of commission-hungry IFAs. He says: “Mystery shopping from the FSA a few years ago revealed a strong link between the sale of single-premium products like bonds and commission but no links for regular-premium products.”
He believes the real potential distortion comes from the relationship between insurance companies and banks. “With the onset of depolarisation, how much will insurance companies be paying banks to take their money on board? This will have a distorting effect on competition,” he says.
McAteer does not believe the ABI's Raising Standards initiative has changed much and has little confidence that the new projects will either.
But ABI spokeswoman Emma Quantrill says: “We cannot stop the ball rolling just because we have launched initiatives like Raising Standards.
“The industry is constantly moving and we cannot have the same attitude we had five years ago. We want to find out where we are now and where we want to be.”