Is there such a thing as a parallel universe? I would contend that we must be living in one with the development of the marketplace for the Sandler products going ahead with the public unaware that they are just round the corner.
There has been much talk about the spectre of Regulatory Update 64. For those of you who missed it last time round, its impact on product design and charging structures was massive and I believe its principles will apply to this latest range of low-cost products.
Before you switch to lobby mode and chant “it's not fair”, let us remember that the smart client will hardly accept higher charges for his £300 a month when someone else is paying less in charges but investing a tenth of that amount.
This benchmarking effect is inescapable and simply adds to the pressure on the IFA to demonstrate added value. Adding this to the menu, the IFA will be under immense pressure either to discount commission or prove the value they bring to the relationship.
I note that Aifa is allegedly trying to create some sort of practice standard. Instead of reinventing the wheel, why not align with the ongoing ISO project which is defining the steps for effective financial planning? That may not suit all of their membership when so many are transactional and add little real value, so is the definition we really need still lurking in CP121?
I strongly believe the fee versus commission debate is spurious and transparency is the key to gaining the trust and confidence of the client. I also believe that if a client does not accept direct costs which may or may not be offset by commissions then the relationship is based on transactions and not advice or planning.
If Aifa goes ahead, I doubt if this standard will carry much weight with the regulator as any recommendations from a non-regulated firm leave the IFA firm responsible for their adequacy and practicality. The driving force seems to be the ongoing fear of hindsight regulation and given the recent consultation paper on the distribution of Sandler products their concern has a solid base.
The FSA has yet again passed the responsibility for adequacy of methods to the regulated firm. If their script is found to be wanting some time from now then claims will follow. So we have a product that cannot hope to pay for full advice enabling the consumer to buy without fear as they have the knowledge that if all else fails, they can then take a claim to the Financial Ombudsman.
Meanwhile, as we all get stressed, the public remain in the dark, not knowing their bargaining position has been strengthened even more. If this is not evidence that the public need to brought up to speed I do not know what is. If we are to work in a low-margin environment, we need consumers to take part in the planning process instead of being passive participants. Like it or not, we will have to understand where these plans fit and even if none of the traditional providers takes part, this will not allow us to avoid that task.
Send me an email or write to me with your point of view.
Robert Reid is principal of Syndaxi