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' sights,
including the Chancellor Gordon Brown, not an easy man to deal with if he
doesn't 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
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's understandable
lack of enthusiasm for them. Thus, this document.
Of course if Sandler's 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' motivation for selling funds, whether on past
performance, commission, marketing or brand, come close to contradicting
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
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't 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's 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's Ample and Virgin Money, would probably
very much like to add a pared-down version of advice to their online
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
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's 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's
banking review warned against price capping while DeAnne Julius's look at
the mortgage market called for regulation of mortgage advice. Neither view
was accepted. Scottish Life chairman and Government adviser Tom Ross's
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.