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Prepare for impact

The demise of the payment menu comes as no surprise and, given the failure of the initial disclosure document as a means of status declaration, its removal can hardly be a surprise either.

Ever since CP 121, the segmentation of distribution as heralded by Ron Sandler, has been lurking in the background.

The recent comments by some about commission not being a dirty word are well meant but simply fail to recognise that the times are changing, like it or not.

In the FSA press release there are some strong clues that my theory will be proven on June 27, the publication date for the retail distribution review. For example, its recent press statement indicates the thinking that will shape the review.

The FSA states that, from its recent research: “It found no consistent evidence that the menu had achieved its objectives through reducing commission levels or increasing the share of advice paid for by fee and found only limited evidence that the menu had reduced provider bias in sales.”

Reducing commission levels, increasing advice paid by fees? Is this the role of the FSA?

I am sure the FSA will argue that this is no departure from its key role as the organisation set to protect the investing public. What it does confirm, however, is that the removal, or, at the very least, a significant reduction in commission levels, are heading in our direction. This announcement is there to soften us up, to get us ready for the inevitable, as the regulator wades through submissions to the review.

Current commission levels on the likes of investment bonds which often exceed 6 per cent rarely equate with the value of the service delivered by the intermediary. As we move to factory gate, the transparency will result in many consumers questioning the value they receive.

A few weeks ago, I decried the comments in the media that everyone was happy with the advice they received. This, of course, was patent nonsense as none of those questioned had any benchmark to judge alongside the advice they had received.

Client research and persistency will be needed if the firms are to prove that treating customers fairly is working effectively in their firm. We need to be able to communicate the value of advice if we are to be adequately rewarded for our expertise. I have no doubt that many firms provide excellent advice on a commission basis. However, there is the risk of bias and, in some cases, the risk that the commission paid is inadequate for the advice given – and the benefits it has delivered.

We need to start to show the impact of our advice and that means more than demonstrating the savings or investment returns.

What we also need – and as soon as possible – is the means to debate just how we, as professional planners, can deliver this.

Participation is important. The Personal Finance Society conference will deliver the topic and the time to debate and to formulate our way forward. I look forward to seeing you there.

Rob Reid is managing director of Syndaxi Financial Planning.


Don’t make a meal of menu

Advisers who have welcomed the removal of the payment menu from their lives would do well to consider what alternative the regulator may be planning.


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