This week I noticed reports that the ABI was proposing a new type of adviser for middle-income earners.
This tier was referred to as financial awareness representatives, who would gain from reduced compliance and training burdens. So in one move we could arrive at a model where the competence of the advisers was diluted in proportion to someone's income.
This is continuing down the road of trying to satisfy the lowest common denominator in terms of competency and is completely banal. The public has a right to advisers who are competent to the minimum standard, which makes advice a viable stand-alone product.
When I was drafting the original G60 syllabus I was lobbied to reduce its level, to ensure that advisers could pass at the first attempt. Much as I would have liked to simplify the area of pension transfers, the reality is it is highly complex and reducing the level of competency simply avoids the issue.
The FSA must raise standards for the benefit of consumers and stop holding them down to avoid the lobby from some providers and IFAs not prepared to move forward.
The other premise in the proposed model is that the lower income groups would save if only advice was readily available. People do not save in the lower income brackets because they cannot – that is mathematics not politics.
Some years ago I was asked to assist a Money Advice centre just outside Glasgow. One lady had accumulated debts on credit cards exceeding £40,000. She was on long-term sick leave from a job where her salary was no more than £9,000 a year.
Her problems were largely self-inflicted – although the ease with which credit was granted played a significant role. When I asked what she saw as the moment she went over the edge she hesitated over the holidays to the West Indies or the Seychelles.
I suggested that she could not afford such expenditure but she stated that she had a right to fulfil her dreams and the credit card companies were the villains. I explained that I longed for a Ferrari and I could borrow to buy one but probably could not afford it. Her response was that I should just put it on the plastic!
Advice may be available. It does not automatically follow that everyone will take heed.
In the middle bracket the complexity of products with charging structures which penalise normality – continual change – is the real issue.
Introducing Cat marks on all product lines would, at a stroke, remove many of the problems in terms of training company representatives as the flexibility of the product would reduce the likelihood of poor product selection.
I realise that suitability remains an issue with the Cat mark approach but that can be reduced by education in the workplace, provided the tax incentives are introduced to bring employers into the loop.
There is no doubt that quality advice should be available for all. To do this we need a mixture of pro-bono, workplace learning and the IFA on a one-to-one basis – with the IFA having a key role in all three tiers.
How can they assume that the take-up will be as they suggest. If that was a business plan to raise finance I believe it would struggle, as have direct sales forces over the last few years. The way forward is to create a model for our sector where standards are at the level the public expects (which is certainly not FPC). This would be a partnership between the state, the employer and the IFA.
We need to accept that some of our number will not and in some cases cannot, move up a gear. We must not slow down to their pace – it is far better to see them disappear in the rear view mirror.
Robert Reid is a principal at Syndaxi Financial Planning