It really doesn’t matter what we say or think, it is the technology available to us that defines our future. But the more you think through some examples, the more the argument intrigues. Could the Reformation have occurred without the printing press? Did the Berlin Wall start to fall because of the advent of computer code and the consequent spiralling rate and cost of technological change?
This idea affects our little financial services world, too. If we are going to treat customers fairly, we had best adapt regulation to the reality of web-based buying. The Icobs team are facing up to this task. Execution-only selling tactics have been better understood on that side and it may be that some sales-friendly but effective web consumer protection is on the way. Elsewhere, the FSA is uneasily looking into the advice (in FSA terms) given by price comparison sites that claim not to give advice. But the centrepiece of regulatory effort is the retail distribution review and while it is not focused on the web, it contains a web-suitable solution in the new approach I call RDR2.
Price comparison sites and execution-only sellers will be described as sellers and guiders rather than “non-advisers”. The word “advice” will not appear other than in the consumer warnings the FSA requires of them. But those tied agents who call themselves advisers and who thus hate RDR2 will loathe being classed in that same category. They will resist tooth and nail the deletion of the word “advice” from their pitch. The word has taken on totemic status in our industry because we understand that most should not buy without it.
The consumer, though, is far too long in the tooth to believe anything to be advice until they personally recognise it as such. The trouble is they very often fail to distinguish correctly between sales pitch and advice and the regulator has rightly, if perhaps quixotically, decided it must teach them a new language.
As RDR2 by implication acknowledges, this attempt to educate has no chance of success if the definitions in the new language are not crystal clear and unambiguous to consumers, so it is wise of the RDR team to use a non-commercial definition to define a non-commercial concept. It is common sense that advice best comes from an objective view and that to be objective you must be able to access all possible solutions you feel right for your client. So classing advisers as those who can choose from as near to the whole market as is practical is the clear and unambiguous position the FSA should take and hold.
The definition does not need to be blurred by remuneration or qualifications or any other jargon. Those serve only to confuse the consumer. Let the common sense prevail that advice must be independent and you can start to build the clarity prerequisite for trust.
If you test this logic by asking why my independent firm would be classed as an adviser while St James’s Place, say, would not, the answer comes back easily. It is because my advisers can say, do or recommend anything that they (and our compliance officer and the FSA and eventually the ombudsman) think is right for the client, whereas their counterparts at the other places must pick from a prescribed list.
Commercial contractual considerations must prevail in any firm that is not independent. They will sell what they can and we will advise on what we want to. How ethical and clear to consumers is that simple truth? It will do more than any other single change to improve outcomes for consumers.
Tom Baigrie is managing director at Baigrie Davies Lifesearch