Are we about to witness a new “advice revolution” that will make the market work better for consumers? This was asked last week by Money Marketing, which looked at the recent launch of the Financial Advice Market Review by the Government.
MM journalist Mark Sands wrote the initiative signalled “signs of a growing [Government] impatience with the FCA for “failing to grasp the nettle on the advice gap”.
Mark asked whether the review offers the potential to deliver, as some observers claim, “a proportionate regulatory system that encourages, rather than destabilises, the advice profession”.
Perhaps I can add my own experience to the mix. Sometime in the summer of 2002, when I was working on a national newspaper, my boss and I were invited to a private one-day ABI seminar on the subject of savings.
The aim of this event, attended by just us two journalists, plus consumer representatives, regulators and senior industry executives was to discuss the so-called “savings gap”, a new term the ABI was shortly about to unveil to the public.
Attendees were shown specially commissioned research showing how this “gap”, the difference between how much people were saving and the amount needed to ensure a “sufficient income in their retirement”, stood at £27bn.
After a few hours, during which those present attempted valiantly to bridge this “gap”, the ABI helpfully provided us with its own solution, like Peter Purves on Blue Peter producing a previously made replica of an international space station crafted out of empty Fairy Liquid bottles.
Surprise, surprise, the bulk of the ABI’s proposals involved allowing the product sales process to be massively simplified for clients with “less complex needs”.
The ABI had calculated that to make one successful sale took up 13 hours for an IFA, less for direct salespeople. This included five hours to prospect for clients, chase up leads, set up appointments and travel back and forth to their home.
All this sales time impacted on the cost of the product. So why not allow the industry to offer so-called “safe harbour” products, like stakeholder pensions and investments, where the requirement for a compliant sale would be less onerous?
Contrary to the views of some sceptics, myself included, the fundamental purpose of these proposals, we were told, was that of making the advice market work better for clients. Sadly for the ABI, its ideas that year met a lukewarm response from just about everyone, including the government, journalists and consumer groups.
Over subsequent years, attempts by the industry, as well as regulators, to create so-called “safe” mechanisms for selling products such as the ones suggested back then have all bitten the dust.
In 2003 the FSA carried out an experiment into proposals by former Lloyd’s of London chief executive Ron Sandler for a simplified stakeholder selling regime.
Unfortunately, its own panel of experts who reviewed advice given to take out a stakeholder pension – the mummy and daddy of all “safe harbour” products – found almost half were “unacceptable” for reasons that included incompatibility with attitudes to risk, or respondents’ financial situations and objectives.
Incredibly, more than 25 per cent of recommendations to take out a stakeholder pension were to people who were already members of, or would shortly be able to join, a company pension scheme.
A year later, more research from the FSA found people being screened out inappropriately and unable buy anything, regardless of whether they needed it. For those left, there was still up to a 20 per cent chance in some cases that they might be wrongly recommended a product.
Undaunted, in 2005, the ABI put forward yet another plan – the “basic advice regime” – to sell financial products to less well-off consumers by means of a basic questionnaire taking 20 minutes of an unqualified advisers’ time.
This proposal also foundered, only to be raised three years after that, in 2008, only this time it was called “assisted purchase” – and came with a questionnaire lasting a massive 30 minutes instead of the original 20.
Four years later we had “basic advice plus”, a regime allowing salespeople with a QCF Level 3 qualification – while all other advisers have QCF Level 4 – to sell a suite of “simple” products such as protection. This plan was backed by the Association of Mortgage Intermediaries. In other words, what we have seen over the past 15 years are repeated attempts by the industry’s big battallions to make selling easier at the expense of consumer interests.
The new talk of “safe harbours”, this time making it acceptable to give bad advice as long as the underlying product had been deemed OK, involves a removal of key regulatory protection from millions of consumers across the UK.
Although officially a joint FCA and Government initiative, this so-called review has the ABI and the banks’ dirty fingermarks all over it. Nor is it genuinely independent: the answers, as well as the questions being asked, are all pre-scripted, just as they were in 2002.
This is not an “advice revolution” but a counter-revolution that will harm both advisers and their clients. It should be opposed.
Nic Cicutti can be contacted at firstname.lastname@example.org