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Outside edge – David Ferguson

I guess when the dust has settled on CP121, we will all remember the last few weeks for some time to come.

Although the initial hysteria that greeted the publication has started to make way for reasoned debate, opinion remains fairly polarised on the likely long-term outcome.

In these situations, there will always be those who see the light and those who remain plunged in darkness.

My prize for the most preposterous contribution is awarded to the IFA who wrote in last week&#39s Money Marketing that the FSA was a disgrace as it had not sent him a printed version of the document and that he therefore had wasted time and money downloading and printing his copy.

Doubtless, the FSA will still be wading through the detail of this individual&#39s considered response to the consultative document.

Personally I favour the view that CP121 actually creates a range of new opportunities for providers and distributors.

The challenge really is to clarify the various possibilities, determine where margin is generated and then make a straightforward commercial decision. While perhaps obvious, it seems to have eluded many who are still running around trying to satisfy everyone.

Perhaps this is partly due to the fact that commercialism has not always had a prominent seat at the retail financial services table.

After all, why bother when soft capital has always been available for burning and the industry is so complex that no one really understands it anyway? Could it be at last that genuine competitive pressures are starting to emerge and that the traditional last resort of ripping off the client may no longer be an option?

How many bad corporate decisions go unpunished? When do you ever hear of a life office executive being dismissed due to his or her underperformance? It is all just too cosy. On the other hand, the valuable end of the IFA sector offers a self-financed commercial proposition.

Going forward, how will this new commercialism manifest itself? The big debate for me revolves around the division of total margin between manufacturing and distribution. Who needs who the most? It seems to me that the life sector is vulnerable in all this and that decent distribution holds a very big advantage.

There is no doubt that the best businesses in this industry are not the life offices but are the high-end, professional IFA firms. It is here that the greatest value is added at the most reasonable cost.

In contrast, the appalling inefficiency and weak technology of the life offices is almost laughable. Thousands of und-ermotivated, underskilled back-office staff strive to keep these monolithic firms ticking over but it seems to be to little avail. It seems to me that since time began the levels of service have been quite appalling and little is changing.

The other driver in my thinking is the impending arrival of Ron Sandler&#39s review. There seems little doubt that the main focus of his report will be with-profits and the accountability thereof.

This could be arriving just when life offices need it least. Cutting off access to cheap capital as IFA demands inc-rease post-CP121 will signal the beginning of the end for many firms.

Although there is little doubt that the detail of the proposals remains unclear, I cannot feel we are on the cusp of an exciting period, for IFAs at least. Provided that capital is available, the end game should be very attractive as the relative value of the sector becomes understood and appropriately remunerated.

David Ferguson is a director of product design and marketing consultancy the abacus


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FSA defends its research for CP121

Q: What will happen to the existing renewal/fund-based commission income streams under the proposed new regime?A: We deal with the point at paragraph 4.36 of the consultation paper where we make it clear that it is not our intention to prohibit those firms which move to defined-payment remuneration and, as such, are permitted to call […]

Commission possible

There are two essentially separate points in CP121 – the proposed changes to the rules about polarisation and the proposed introduction of the defined-payment system for IFAs.The first is about distribution and could be introduced without the second (which is about remuneration). The converse may also be true in theory but, in practice, the impact […]

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