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Out of focus

Amid the welter of words that have followed the publication of the retail distribution review, most of the attention has focused on the technical aspects of the proposals. Very little time has been spent on trying to understand what consumers actually want.

This glaring gap became evident last week with the publication of two separate documents. The first was Aifa’s paper, The Meaning of Independence, which looks at the FSA’s proposal to change the criteria that firms need to meet in order to call themselves independent.

Many people who have looked at this issue have rightly pointed out that there are significant problems with the review’s plans.

Aifa says the suggestion that only advisers in the professional financial planner category would be able to use the “independent” label could lead to it becoming “devalued”.

The trade body also repeats the objection that removing the link between the scope of advice and independence would allow whole-of-market, multi-tied or even tied advisers to be PFPs.

Aifa deputy director general Fay Goddard goes even further, suggesting that “the RDR also leaves open the option that primary advisers may be able to use the term independent”.

Aifa argues that providing whole-of-market advice is an essential condition for independence. Unfortunately, it then goes further, implying that general financial advisers should also be allowed to call themselves independent. Why? Because they “operate free from potential bias, offering whole-of-market advice” and are paid by so-called “customeragreed remuneration”.

Indeed, taking the argument to its logical conclusion, Aifa goes on to say that both PFPs and GFAs remunerated by traditional commission, assuming the client wants it, should be classed as independent. Effectively, what Aifa is doing is using the terminology of the RDR proposals to press for the status quo to be maintained, where IFAs can operate pretty much as they like, as long as they offer – or pretend to offer – whole-of-market solutions to clients.

Of course, it is right to say that multi-ties and single-tied salespeople should not be able to call themselves independent but Aifa then shies away from the opportunities opened up by the RDR debate, the key one of which is to ensure that we move towards the development of a new, highly skilled, professionalised version of independence.

By contrast, last week also saw the publication of a separate report from Aegon, which this time actually looks at what consumers want as distinct from what advisers want or say their clients want.

Earlier in the year, Aegon pulled together 82 people for a workshop where they were asked to discuss their attitudes to financial planning and given a blank sheet of paper to design an advice market that they would have trust and confidence in.

Those taking part were in the £20,000 to £50,000 earnings bracket, reflecting a genuine cross-section of the population and also the kind of people who might be interested in independent financial advice if it were an attractive enough option.

They were encouraged to discuss their attitudes to financial planning and given a blank sheet of paper to design an advice solution they would have confidence in and trust. From these initial findings, Aegon identified five advice concepts and tested these in a further workshop with 17 people from the initial wave of research.

Generally, I am a bit sceptical about research carried out by focus groups. In my experience, it is possible to manipulate the research to give the answers that those posing the questions want to hear. In this instance, however, the outcome seems to offer a blast of common sense to the debate of what independence really means to consumers.

Unsurprisingly, and in contrast to Aifa’s stated view that “consumers understand and value the term independent”, the focus groups organised by Aegon found that people do not see IFAs as truly independent or focused on clients’ interests.

Yes, they want independent advice, designed around their needs. Their preferred option, out of several advice models presented to them, was that of the “financial guru” – an independent expert giving high quality, ongoing, personalised financial advice, separate from product selling.

Yet the focus groups did not recognise IFAs as having the necessary attributes to fit in this category, such as providing ongoing, holistic advice.

Clearly, there will be many IFAs reading this research who will argue that they do provide the kind of service that Aegon’s research shows consumers really prefer.

Yet the fact remains that many do not. Even where they do, it appears that customers do not recognise the service they receive from IFAs as reflecting their advice preferences.

What this work implies is that, sadly, much of the debate over the RDR is taking place within a bubble in which the true feelings of consumers are barely getting a look-in.

Perhaps, instead of Aifa and others simply defending the right of the IFA sector to continue as if nothing was wrong, they ought to be commissioning more of this kind of research and then reflecting it in the proposals they put towards the debate.

Nic Cicutti is the editor of He can be contacted at nic.cicutti@money


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