View more on these topics

Outside edge

When the ABI announced the introduction of the Raising Standards

initiative, my concerns were threefold.

First, as I understand it, Raising Standards is solely a life office

project that purports to represent the long-term savings industry. This is

wholly inappropriate as many long-term savings products are offered by

asset management groups and other types of business, including banks.

This life office focus is typical of the arrogance of a sector that seems

to believe it has a right to control this market. Since the abolition of

life assurance premium relief, the reasons for investing in a UK life

product for investment purposes have been arguable and such products most

certainly should not be assumed to be appropriate for the majority.

Second, a key area of the work concerns common terminology used in the

industry. For example, should we refer to with-profit or with-profits? This

is very valid in principle but recent launches of “new” with-profits

products by companies such as Scottish Widows and Scottish Equitable have

highlighted that no amount of commonality on definitions will assist

investors if the propositions being described are so radically different

from each other and from historic propositions bearing the same name.

With-profits has come to mean absolutely nothing at all and I would suggest

that alignment of terminology may actually serve to confuse and mislead


The third area that concerns me relates to penalties on early withdrawal –

and this is where the fundamental problems of the life industry really

become apparent. Early withdrawal penalties exist for the most part to

protect life offices from loss in the event of inappropriate advice or

short-term changes in a client&#39s circumstances. Such a loss can occur due

to the internal new business processing costs or the payment of commission

to an intermediary.

The first of these is solely an efficiency issue as, for some reason, it

costs life offices far more to process new business than it does for, say,

an asset manager. Why this should be I cannot be sure although I would be

unsurprised to learn that it relates to the respreading of (outrageous)

development and marketing costs.

The commission issue arises primarily as the life industry has never taken

a big step back and studied its distribution model. Flogging products

through a sometimes greedy and often unskilled part of the IFA market is

not a supportable model for 2003 and beyond, particularly where it is

approached through a branch network of largely inept broker consultants.

Investors are far more savvy than in the past and the fear of being ripped

off has never been more prevalent.

It is essential to eliminate front-end-load products if the life industry

is to prosper in any way going forward. The overly actuarial approach of

protecting everyone apart from the consumer is entirely inappropriate and

must be superceded. If a no-load approach typically operates in the

mediumand high-net-worth part of the business and is entirely sustainable,

why should it not be suitable for the mass market. Why not begin to

consider customer value rather than product value? If this means reliance

on a tied or multi-tied distribution model, then so be it, but you will not

succeed if you persist in the current vein.

In many ways, this is what Raising Standards is trying to achieve – the

problem is that the initiative sits at a level too far above the

fundamental industry issues of overall inefficiency, poor management and a

deeply flawed distribution model. If the life industry really wants to

remain a key provider of long-term savings, these deep, vital issues must

be addressed soon. For, if not, I fear you can forget about potentially

valuable initiatives such as Raising Standards and instead focus your

efforts on raising the white flag. If you don&#39t do it, someone else will.

Best wishes for the new year to all in the industry.

David Ferguson is director of Abacus


IFAs and investors disagree on markets

Almost three-quarters of IFAs believe the stockmarket will be higher in six months&#39 time, according to JPMorgan Fleming. The fund manager&#39s confidence survey, conducted last month, found that 72 per cent of IFAs believe the stockmarket will be higher in June. But in a separate survey, JPMorgan found that just 23 per cent of investors […]

FSA will soon be losing its powers to Europe

Although much discussion continues about the activities of the FSA, itappears that some people are still slow to understand how financialservices will be regulated in the near future.When the UK signed the Maastricht agreement which codified many details ofthe single European market, it also passed many powers of government to theEU authorities.Importantly, it allowed for […]

IFA firm opens new office in Glasgow

Telford-based IFA Start Independent is opening a branch in Glasgow, with 18RIs set to join its sixth regional office when it opens on February 1.Start Independent is part the Lifeboat Group, which also includes IFAnetwork A La Carte.Start Independent, which has 70 RIs, aims to recruit 600 more advisersbefore parent Lifeboat&#39s proposed flotation in 2005. […]

Fidelity goes for neutral style

Fidelity Investments has added a specialist global equity fund to its Fidelity Funds Sicav range.The Fidelity Funds global focus fund will invest in between 100 and 150 stocks. The MSCI World Index will be used as a guide when constructing the portfolio, but the fund will not be restricted by sector or geographic weightings.Fidelity&#39s director […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm