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Nic Cicutti: Advice review has providers’ dirty fingerprints all over it


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



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There are 21 comments at the moment, we would love to hear your opinion too.

  1. Nic, this is unusually slow off the mark for you. Following the headline on 25th August I put in my usual tuppence worth:

    Ah, the naiveté and faith that continues to be displayed by our industry journalists and commentators regarding those that legislate.

    We have ‘hokey-kokey’ policy when it comes to financial services. Policy is in – out and shake it all about.

    What’s the betting that this latest review – after all the traumas, effort, cost and time taken with RDR – is going to be a reversal of the basic premise and that banks will be shown an open door in order to provide affordable ‘advice’ . That in a few years’ time they will yet again be brought to book for flogging second rate stuff that no one really wanted in the first place is yet again a history lesson that hasn’t been learnt. “Those who ignore history and condemned to relive it”.

    I am really glad that both you and Natalie in her leader have rumbled what’s really going on. Yet again we seem to be heading for the same old, same old. Pile it high sell it cheap. Watch the margin and allow for the fines and compensation that will come later. Only this time with any luck they won’t be winding up advisers to be the patsys, it will (or at least should be) entirely their backsides in the sling.

  2. It would be really good for a senior regulator or a politician to stand up and say “Sorry, we got it wrong and caused an advice gap”. Won’t happen though will it?

  3. There seems to be some conflation here between the issues of a simplified (and thus more affordable) advice process and suitability. Obviously, selling somebody a tax assisted retirement savings plan (the word pension is now so discredited that we really ought to ditch it) when they’re shortly to become eligible to join an employer-sponsored scheme is almost certainly an unsuitable sale. But pretty well everyone should have a retirement savings programme, for which a tax-assisted arrangement can be demonstrated (I’ve seen the comparisons) to produce the best results long term, even allowing for tax on the income element.

    So, for someone who has no RSP in place, selling them an RS Plan should be as simple and as inexpensive as possible. And that shouldn’t mean having to consume acres of page space explaining why a good platform-based plan with inbuilt adviser charging is better than some crappy stakeholder policy with a very limited range of funds and almost non-existent provider service.

  4. There has always been an advice gap but the RDR experiment served to widen it to a chasm.

    The thought that somebody at Canary Wharf would hold his or her hand up is breathtakingly optimistic. More likely the response will be, “It weren’t me guv, honest. Bloke that did it has left now.”

  5. The elephant in the room is suitability. Despite the rules being unchanged for a number of years, the constant stream of guidance and comments from the FCA and the machinations of the FOS perpetually shift the sands. Until this is stabilised any review will go nowhere.

  6. Another pointless back in the day history lesson Nic – about time journalists were heavily regulated so I don’t have to read the hogwash that’s being rolled out!!

  7. The murky waters of COBS and the FCA Rules mean that almost any interpretation can be applied with hindsight.
    In my previous career as a pilot, I worked closely with the Civil Aviation Authority (CAA) who enforced the Air Navigation Order in much the same was as the FCA are supposed to enforce the FSMA 2000. Fortunately, it was always possible to approach the CAA on an open basis and to seek clarification and guidance on any vague areas on the name of flight safety and get a written response confirming the correct interpretation. This one to one exchange, made by pilot to pilot or to an experienced air traffic controller or flight engineer added hugely to safety, without any fear of retribution.
    I regard my adviser responsibilities to my my clients no less that I did for the lives of my passengers.
    Maybe the FCA could learn from the CAA who have been around a lot longer than the FCA?

  8. There still seems to be this view amongst advisers that those who are deemed to have fallen into the ‘gap’ will immediately rush to obtain financial advice as soon as it is possible to offer fees at derisory levels or commission is reinstated.

    As Alan has said there has always been a gap. The bulk of the public neither have the interest or the wherewithal to engage and AE has soaked up a fair number of the disenfranchised anyway.

    Commission just allowed high pressure salespeople to flog stuff that no one really wanted and the retention rates were truly awful, but providers and commission salesmen (who in fact worked for the provider and not the client) didn’t much care as they trousered the lolly. Commission has to be funded and it was funded via higher product costs.

    Offering cheap as chips fees is no way to run a robust business. Callum McCarthy wasn’t that wrong when he lectured us saying that our model wasn’t robust.

    It really must be appreciated that like engaging a solicitor or accountant – financial advice has a cost – and if you are not willing to pay it you are excluded.

    • i pretty much agree with Harry. There is very little competition at present, so if the FCA want to let the banks back in, then perhaps let them, but make sure it is clear it cannot be described as advice and the cost to the consumer MUST be lower than a true adviser would charge too.

  9. @Harry Katz: Sorry for coming late to the party. I actually wrote this some time ago, but the vagaries of MM summer publishing schedules meant it only appeared now.

    Any adviser who naively believes this review is about a “Bonfire of Regulatory Rules” is deluding him/herself.

    Its purpose is not to bridge the “advice gap” by enabling high quality advice to be offered more easily, but to make it easier to provide rubbish advice.

    This will be done by creating so-called safe haven products that sub-standard and lesser-qualified advisers from banks and insurers will be able to sell more easily, without fear of regulatory comeback. Consumer protection will go out of the window.

    Which is why, @Richard Wright, you can describe what I said as a worthless history lesson if you like. But as someone said: “Those who cannot remember the past are condemned to repeat it.”

    This is “Pensions Mis-selling Mk II” and consumers will pay the consequences for decades.

    • No one thinks it will be a bonfire of regulatory rules but it will look closely at the “interplay between the regulatory framework for advice and the role of FOS and FSCS in redress” That at least is an opportunity to lobby for some important change

    • good article and comments from you and your readers triggering a sensible discussion\debate.

  10. The providers knew this hence they started recruiting 12 months ago.

  11. Any review of the Financial advice market must try to answer a fundamental question, “what are the rights and responsibilities of adviser and client in the advice process?” Today it seems that the adviser has all the responsibilities and the consumer has all the rights

    Consumers have the perception that taking advice removes all risk of having a bad outcome and to some extent this is reinforced by many advisers. Take the statements, “my advice is guaranteed” or “I take responsibility for the advice I give you,” what is the consumer going to make of that? Surely the implication is that if I lose money or later find that what was recommended wasn’t the best option then I can hold the adviser responsible for my loss. This though is totally unrealistic. If advice is the answer to the question, “what should I do?” how should we proceed if the only honest answer is “I don’t know”

    The review should start with a blank sheet of paper and consider what consumers can reasonably expect from the advice process. I don’t have an answer but I am absolutely certain that until this is defined we won’t make any progress.

    An analogy might be made with the restaurant business. At present the regulator seems to want every consumer to get a similar standard as you might get at the Savoy whereas most consumers would be quite satisfied with going to Nando’s and crucially are only prepared to pay Nando’s prices.

    And her’s a final thought. I can go to a bank and ask for a personal loan of £10,000. The transaction can be completed in less than 30 minutes and I will be in debt and have less income for the next three to five years but I am an adult and am capable of making that decision myself. If on the other hand I go and see an adviser and want to invest £10,000 I have to go through a long process, get a mountain of paper and documents for a transaction that potentially increases my wealth. Isn’t that the wrong way round?

  12. The problem is the market splits into two.

    Those who need or would benefit from IFA And will pay, and the rest.

    Simplified advice/guidance whether with Pensionwise/CAB or a tied adviser is still better than no advice at all.

  13. @ Nick Bamford: read the original Money marketing article and analysis. The implication of a “safe haven” product is the removal of key elements of consumer protection.

    So-called “simplified advice” + are a recipe for poor advice and potential mis-selling.

    @ John Trayner: the Nandos/Savoy analogy is interesting. However, in both cases there are strict statutory requirements in terms of kitchen and food hygiene, minimising the risk is of diners becoming ill after eating in either restaurant. If there are any infractions the owners of either restaurant can be fined or even closed down.

    No-one says: “It’s only Nandos, so we will allow cooked and uncooked chicken to sit side by side. As for the odd mouse and rat droppings, the Churrasco Thigh Burger only costs £7.45, so we’ll let that one pass…”

    Moreover, the other key difference between Nandos and the Savoy is that while I might have a meal at either establishment once in a while, if things go wrong the worst that generally happens is a gyppy tummy.

    Deaths from food poisoning in restaurants and takeaways are, thankfully, extremely rare relative to the number of meals eaten out each year – precisely because of the controls I’ve described.

    Strict controls are also in place to try to reduce the incidences of viruses even entering the food chain, including the breeding stage and the slaughtering of animals. No-one would suggest any current controls should be reduced in intensity – although cuts to various statutory agency budgets make them more difficult to manage

    In contrast, a pension is a lifetime commitment and getting the wrong advice will have dramatic consequences for retirees and their families for anything up to 20 or 30 years after retirement.

    Reducing consumer protection makes that likelihood far greater.

    • Perhaps the issue is about the form of the protection, not the substance. Other professionals, including doctors and lawyers that can have life changing influence, do not have the same level of paranoid regulation. But then financial services regulation is currently led by politics rather than what’s good for clients and until that changes I fear that poor advice and mis-selling will continue.

    • Very valid point Nic; RE-: Nandos and the Savoy…… however do you know how much their levies are/would be, should my local fish and chip shop be closed down because they poisoned half the local community and ran away before they could pay their fines and compensation ?

  14. They’re coming back, like it or not. If you want to change it, join a Private Member’s Club and have your say!

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