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Our view of the retail review

One promise to readers from the editor and staff at Money Marketing – at

no point in this process will we censor or compromise our coverage of the

review process in order to gain the dubious distinction of getting to a

story first. If we have to print an article a week after some of our more

dove-like competitors, Money Marketing will accept this. If this is what it

takes to make sure that the information we print is not soft-soaped or

downplayed to the point of inaccuracy, then we will accept it.We believe

that readers will understand this position.

T he Sandler review could be the most important thing to happen to IFAs

and to the entire retail side of the industry for decades. It is a very

strange consultation document which hurls accusations and in many ways

prejudges its own review. But IFAs must not ignore it.

The Treasury has the bit between the teeth and may demand changes that

could make the genesis of the FSA pale into insignificance. It also marks a

watershed in that IFAs are clearly in senior Cabinet ministers&#39 sights,

including the Chancellor Gordon Brown, not an easy man to deal with if he

doesn&#39t like what you are doing.

IFAs have for the first time been placed at the root of the problem. Even

with polarisation under threat and price capping on stakeholder, IFAs have

not until now been the direct target of reform. But the signs have been

there for a long time, with decision trees, league tables and the almost

miraculous powers claimed for Catmarks, that little faith was being placed

in advisers.

The main reason for this is probably the pension review, stirred up again

by problems with endowments and FSAVCs. The final sting is provided by

stakeholder and other Catmarked products and the industry&#39s understandable

lack of enthusiasm for them. Thus, this document.

Of course if Sandler&#39s consultation paper had made those remarks about an

individual IFA, then that IFA could probably sue over libel.

The report is poorly written, probably because it was done by committee,

and represents even poorer policymaking. The civil servants involved have

got caught up in some sort of great Machiavellian game, proving how clumsy

the Treasury can be when it strays beyond its traditional fiscal territory.

If in doubt, the adage seems to be, be a bully. The DSS is, as usual,

looking for easy answers to difficult questions on welfare reform.

The document puts forward a series of accusations about the industry,

almost all of which are negative and all of which are unattributed. The

suggestions about IFAs&#39 motivation for selling funds, whether on past

performance, commission, marketing or brand, come close to contradicting

each other.

The timetable of two months from the start of August is madness. It is as

if some people behind the consultation do not want answers.

But I would urge Money Marketing readers to let this newspaper make the

much needed criticisms of just how the review is being carried out. IFAs

should get on with answering the substance of the accusations as calmly and

as methodically as possible.

The great hope for IFAs in all this mess, is actually Ron Sandler himself.

The independent review may have been hijacked by Treasury officials but

Sandler is adamant he is independent so it is possible he will hijack it

back.

Where he will end up is hard to tell. Investment knowledge should be one

of the easier areas to nail as even some IFAs concede it could be improved.

This will lead to some overhaul of the exams and T&C regime but wasn&#39t this

already being done by the FSA?

As for commission bias, there will always be bad apples. But Money

Marketing is very sceptical about claims of systematic problems. Best

advice&#39s benign effect should not be underestimated. In addition, even if

Sandler decides there is some sort of moral hazard, what can be done?

A maximum commission agreement is a non-starter due to competition law.

Any other attempts to control commission may involve Catmarking virtually

everything, including with-profits.

But here there are major difficulties. It is difficult to see how a

price-capping intervention would not penalise existing policyholders.

Clearly, there will be some attempt to limit high front-end commission.

With-profits may have its own problems but surely well capitalised

insurance companies will not be stopped from offering it.

Any of these moves would represent an unprecedented intervention in the

operation of the market. Admittedly, stakeholder pensions show that the

Government can impose Draconian conditions but at least there was some

justification because it was aimed at low earners and the great unpensioned.

Attempts to impose a compulsory price cap on advice is probably an

intervention too far and would lead many to leave the industry while the

battered and bruised advice sector would not embrace a voluntary scheme.

There is also an implication in Sandler that IFAs are restricting the

market and competition. Many product providers are clearly under the

impression that they are suffering some restriction. Some fund supermarket

operations, say, for instance, AMP&#39s Ample and Virgin Money, would probably

very much like to add a pared-down version of advice to their online

offering.

Yet it is difficult to see how polarisation has kept banks out of life and

pensions in any significant way. They failed because they did not offer

good products.

But Sandler will probably have his tuppence worth on polarisation. Money

Marketing would argue that removing polarisation would freeze in place many

supposed biases, if they exist. Multi-ties surely represent the ultimate in

commission bias. There remains one unresolved issue. This review takes

place in parallel with the FSA&#39s work on polarisation and with-profits and

with several other changes as N2 looms. But what if Sandler and the FSA

disagree? Who takes precedence?

It is difficult to see what lies at the end of this review, partly because

these issues have already been examined to death, partly because, even if

there are problems, there are few obvious solutions.

IFAs should be able to marshal a defence around the fact that they have

been increasing in professionalism for years. It may be in increasing their

efficiency and knowledge that the solution lies and just possibly Sandler

can be convinced this is the case. Perhaps Sandler might even suggest

relaxing the stakeholder cap as well looking at measures to bring down

prices on other products.

One final word on Sandler himself. It is possible that if he disagrees

with the prevailing prejudice, he could be ignored. Don Cruickshank&#39s

banking review warned against price capping while DeAnne Julius&#39s look at

the mortgage market called for regulation of mortgage advice. Neither view

was accepted. Scottish Life chairman and Government adviser Tom Ross&#39s

warnings about the direction of pension reform went unheeded.

But it would be fatal for IFAs to work on this assumption. They must set

about proving that many of the suggestions are not true and, where there

are problems, show the way they can be addressed.

That way, a really nasty bout of blood-letting might just be avoided.

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