What's so funny about peace, love and understanding? OK, those are the words of Nick Lowe rather than Ron Sandler but I cannot help feel that the sentiment is similar.
When Elvis Costello was blasting out that impassioned lyric the feeling was strong. Likewise it is difficult to argue with the bulk of Sandler's assertions regarding the state of our industry. He is not being vindictive or spiteful, he is acting in the long-term interests of the consumer – and the industry.
What Sandler has proposed is broadly what the industry should and could have been delivering itself. Without the crutch of with-profits, which has distorted the savings and investment industry for too long, Sandler's assertions on asset allocation and value for money are entirely sound.
On the subject of with-profits Sandler has presented the reddest of herrings – he has killed the sector, certainly for non-mutuals, without being seen to fire the gun. His concept of a 100/0 fund accompanied by a smoothing account may work in principle but how many shareholders wish to see their capital tied up in short-term lending, providing a guarantee against a bear market? Shareholders will demand a reasonable return on capital. Realistic shareholders will. Mutual policyholders ought. Where will this come from?
There are three possible outcomes. The first is that shareholders' demand for a 12-15 per cent return on capital will see life offices morphing into loan sharks and crippling the proposition. The reality of lending at 4 per cent means that the balance will be ripped out of the product – not what was intended.
The second is that as reality bites and the product stream dries up, the industry grows up and moves into a phase of serious development.
The third, and most likely in the short term, is that the with-profits label is slapped on to some kind of managed fund and the misleading continues. What does the with-profits “brand” actually mean these days? Connotations for me are 7.5 per cent commission, MVA (whoops, MVR).
If one accepts that economic circumstance and regulatory drive will bring an end to the with-profits market there will be demand for something new. Solutions such as Selestia's are a refreshing alternative and are genuine attempts to shake life into the sector.
Asset allocation is a key part of Selestia's proposition, as it needs to be. If one subscribes to the Ned Cazalet view, and I do, that deducting typical life product charges from a mixed equity/bond portfolio leaves the investor perilously close to the cash alternative, asset allocation (and fund selection) are vital core skills for advisers to have or develop.
Another issue that continually troubles me and which Sandler touches on is the extent of regulation. Is it just me or is regulation not generally in place because the industry failed dismally in its attempts at self-regulation?
Anyway, lots of issues, lots of challenges, but far more opportunities. Let's not forget that a key component of Sandler was the need to increase the general level of saving. If that's not opportunity then I do not know what is. Industries such as motor vehicles and tobacco are confronted by a Government seeking to shrink their market. A Government seeking to massively expand our sector greets us and all we do is complain.
So the next time so you read of a life office chief executive complaining about over regulation and Government intervention tell him or her to chill out, think and then get working. Companies who respond to the challenge in a rapid and focused manner will thrive. The others will continue down their path to self-destruction. They may be greeted at the gates of Hell by Howard Davies and his crew, but more likely than not they will have found their own way there.
What's so funny about asset allocation, value for money and consumer understanding? Nothing.
David Ferguson is a director of The Abacus