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Now is the perfect time for advisers to stop selling products and to start selling their advice

By limiting the charge on stakeholder to 1 per cent, the Government has very neatly taken a giant leap towards removing front-end charges for all products. I regularly hear of companies offering 1 per cent-style pension

plans but with commission terms of 30 to 80 per cent

of Lautro rates. This means one of two things. Either

companies are confident of buying market share or they are convinced that all these plans will run the majority

of their full term.

Rather than consider these strategies from within,

let us consider how clients will react once they are aware of what is going on. One of my clients recently had a visit from their accountant who was accompanied by an IFA consultant from a provider which I will refer to as Scottish Miscellaneous. The consultant explained the stakeholder concept and, in particular, the 1 per cent cap on charges. The accountant was asked what he would earn from the setting up of the scheme and informed the client that he was not taking up-front commission but

4 per cent level commission. At this point, my client said: “I am confused. Isn&#39t it the other way round with

commission at 1 per cent and the charges at 4 per cent?” No, they chorused. This was all too much for my client, who suggested that the meeting had reached its natural conclusion. As he helped them to leave, he explained that, as a businessman, he never dealt with companies which took such a cavalier approach.

I fully support his comments and, with every provider telling me they need 15 per cent of the market to break even and between 20 and 25 per cent to make a profit, that appears to leave space for just four to six providers in the long term. So what of the providers which pull out of the market later? Will we see a re-run of the situation of Crown Life, where marketing triumphed over servicing and led to the demise of that provider? I suspect we will and that will leave the IFA to pick up the pieces yet again.

There has never been a better opportunity for the professional adviser to stop selling products and start selling advice. The introduction of fund supermarkets is not the end, it is the beginning of a new market where IFAs will give advice but leave the unprofitable element of product purchase to the client and a third party, for example, a fund supermarket. From a regulatory standpoint, this would be unwelcome as the regulator is product-led. But this should not be our concern. Regulation is, after all, for the benefit of the public, not the regulator itself.

We need to consider this now and take the first step to promoting the value of professional advice by banning the use of the highly misleading term “free advice”.

There is no such thing – someone has to pay.

Just as with stakeholder, it is the shareholders of many of these product providers who will ultimately

pay for the current approach of buying business,

only to see the target market share unfulfilled and/or

the schemes move to a provider offering lower level of charges. By selling on price, you are dealing in a commodity. We should never make the same mistake with

the sale of professional advice.

Start today by asking yourself what we do for the client that they cannot do for themselves. In the information age, people will be better informed or, in many cases, confused at a higher level. Whichever state they are in, it is our client who will be our main competitor

in the future and we must recognise this and build our businesses accordingly.

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