As I finish the final draft of my “Dear Ron” letter it becomes clear that the status quo is no longer an option. Scottish Amicable abandoning commission on regular-premium business simply acknowledges the fact that a far more commercial world is well on the way for those of us who wish to remain as IFAs.
More than once, I have pleaded for the introduction of clean contracts where the cost of commission is added to the charging structure and not an intrinsic part of the contract.
Currently, rebating all commission in favour of fees does not remove the total costs of commission from the contract.
This is particularly true in the case of with-profits bonds where some national chains have received commission in excess of what must have been assumed when the contract's charging structure was originally formulated.
So where does this additional amount come from and if it is not from the contract itself is this an enhancement to commission, which would then fall foul of PIA rules? Whatever the answer, it is likely that providers rarely re-test the profitability of their contracts with real cases when they stray from the norm in commission terms.
It is clear to me that, given the approach under Myners and assuming that the Sandler review is acted upon, we will find ourselves with a more transparent and effective disclosure regime.
Some have suggested that the Sandler review could go the same way as some reviews in the past, where their contents and recommendations were noted but never put into effect. Those who build their strategy on that premise need to wake up and smell the coffee.
If you intend to sell your IFA practice as part of your own retirement planning either in the near future or further down the road, irrespective of what happens next, you need to formulate your exit strategy as soon as possible.
We need to ensure that our only asset is not the person looking to exit on sale. Providers have been cited as anxious to purchase IFAs but they are not in the business of underwriting commercial risks for the benefit of the IFA. They will only invest in an IFA as a means of controlling distribution and that means multi ties. If you doubt this, remember their ill-fated investment in estate agents.I would suggest that this was a lesson they will not have forgotten.
When multi-ties become a reality, the resource in scarce supply will be people, namely effective and professionally qualified advisers.
Put another way, the ass-ets have legs.
To retain advisers in the future we will need to ensure that it is clearly in their interests to remain with the firm on a long-term basis.
At the same time, we need to build a relationship with the clients where they recognise the firm is providing a particular service which is less dependent on an individual relationship.
This means rotation of clients but, to do this, we need to use back-office systems, which are capable of storing far more detailed personal information instead of simply concentrating on the minutiae of policy details.
In this new commercial world, I think it is time that we have more standard admin methods.
I have just completed an Omo where the companies concerned followed procedures which made little sense and which simply added to cost and in both cases, although their documentation was extensive, it was far from comprehensive.
The focus on costs brought on by Cat standards, stakeholder and Sandler will lead to every action having a price but at the expense of value.
Added value is not always appreciated when it comes with added cost.
Robert Reid is principal at Syndaxi Financial Planning