View more on these topics

Outside edge

While happy to point that out that last time I wrote on this topic I did not feel that a defined-payment system climbdown was likely, I would not necessarily be jumping for joy at the apparent change in tack.

Despite the news that the FSA is set to relax the rules on DPS, there seems little doubt that greater transparency will still be sought by the regulator.

It seems to me that the strong drive of the regulator is toward a value-based business model. One of the steps on this journey is to allow consumers to understand the cost of the advice they receive in the hope that they make a value judgement on the provider of that advice, or even between different advisers. All very laudable and I guess whatever emerges will be progress from the well hidden paragraph on page six of the key features.

What may be more interesting is the impact on life offices and asset managers once their cost of production comes under scrutiny. I cannot help but feel that the former at least has a lot more to be worried about. But that is a different story.

Whatever payment method is adopted, it is certain that consumer awareness of the cost of advice will improve. This is likely to mean that there will generally be a rise in the standard of advice or a fall in the level of remuneration for IFAs. Either way, it may not be an easy road for the entire community. Neither is it clear which approach is most likely to prevail.

My feeling is that the IFA market will polarise (if you will) into highly professional advisers who can command a premium rate for providing in-depth analysis and advice on a client&#39s affairs and a group of less proficient firms more intent on pushing certain products to the public.

The first group is already, and will continue to be massively successful because they are clearly adding something of great value to their clients. In my view, their share of the cake is likely to rise as it is this group that is entirely in control of the client and crucially the assets under management. It seems absurd to me that the valuation multiples applied to these firms are considerably lower than for asset management groups, which, after all, are generally managing transient money. It may be that this anomaly is based on historic attitudes rather than fundamental beliefs but it nevertheless persists today. It is this group that will prosper and will enjoy increasing success, particularly where they can gain some kind of scale without diluting their customer proposition.

The second group, on the other hand, and largely the group in which the big life providers have taken stakes, will find their proposition increasingly commoditised and under threat from discounters and other channels such as the banks. In the same way that pseudo professional services such as conveyancing have come to be charged on a fixed fee basis, it is easy to see very mainstream investment products such as this or that year&#39s Isa being similarly charged. It is difficult to see any value emerging from this group expect perhaps where there is massive scale – and even then it is improbable that such scale will exceed that of the high street brands.

I guess there will also continue to be a middle ground which will continue to offer a decent level of fee for a service that is perceived to be pitched between these two extremes but it is likely that this group will be a dwindling band.

Anyway, who knows? The only certainty is that those businesses that fail to add anything will be squeezed out. In a 1 per cent world, DPS or no DPS, there is no room for passengers. Furthermore just having a ticket will not be sufficient to ensure you last the journey.

David Ferguson is a director of The Abacus consultancy

Recommended

Sandler doesn&#39t make the grade

I have been assessing comments on the Sandler report now that many have had time to digest his glossy blue book. Comments seem to fall into two main categories -hysterically anti regarding much of the detail or fawningly obsequious. Ignoring the detail and looking at it in the context of the bigger picture, it is […]

IFAs take two-thirds of fund sales

The best-selling funds in the IFA sector in August were UK all companies, equity income and corporate bonds and North America funds, according to Investment Management Association figures.Fund sales in the tied market were concentrated on UK corporate bond funds.Gross retail fund sales overall fell from July&#39s £2.3bn to £2.05bn but that figure was slightly […]

James Hay sees Sipp market share grow to 37 per cent

James Hay now has 37 per cent of the SIPP market, with over £6.5bn of funds under administration and over 26,000 SIPPs. James Hay says this now makes it the largest SIPP provider in the UK.Manes Hay managing director, SIPP Division Jan Regnart says: “The popularity of SIPPs has grown dramatically over the last six […]

Sandler attacks industry failure to motivate savers

The financial services industry must not view the prospect of pension compulsion as a redemption for its own failure to create demand for its savings products, warned Ron Sandler.In explaining why the compulsion issue was only touched upon in his report in July, Sandler told delegates at the CII conference that the industry has much […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment