I admire his acute sense of conflict of interest. If only more practitioners thought about FSA Principle for Business 8. But I can assure him that, if anything, the comments were inimical to our commercial interest. I had far more to lose than gain.
However, David’s letter scratches at a serious issue. Many IFA firms are essentially creating the SJP model in their own practices by setting up distributor funds which take away the choice of administration wrapper but provide infinite fund and fund manager choice. It seems that the IFA channel itself is separating on the meaning and the value of independence.
I believe that the value of independence itself to consumers should be examined by the retail distribution review rather than simply taking it for granted. It is a long-established economic theory that choice is good for customers but only if they shop around.
In normal markets, suppliers are expected to compete on price and quality. However, our market is not normal. Too many customers display little price or quality sensitivity. The consequence is that the market is inverted. Price discussions take place between the intermediary and the product provider, not with the customer.
Most IFAs would say that product providers do not compete on quality (of service) at all. They do compete with what economists call excessive product differentiation, which is essentially product distinctions without material economic difference.
When an IFA helps their client through the maze of excessive product differentiation, sadly, they are charging the client to unravel a complication of the industry’s own making.
This has the appearance of adding value but has none. I argue that independence cannot prosper on this basis, as some IFAs seem to have worked out. Rather, advisers can make a valuable contribution by helping clients make sense of their own circumstances and those imposed on them by the needless Government complexity of taxation.
The FSA might help by making a critical appraisal of the utility of independence to consumers. Its era seems to drawing to a close and IFAs are voting with their feet.
If the FSA will not do that, perhaps Money Marketing could use its good offices to promote public debate about the future of this market.
Beachcroft Regulatory Consulting,