There are two connected aspects that individual firms might want to look at. Are you aware of any conflict of interest within your company and how are you going to deal with it?
The key to solving this is transparency. Transparency is the great enabler. It gives consumers the ability to obtain fairer comparisons, advisers to present recommendations with greater clarity and competitors to achieve greater insight which may result in keener pricing models.
I hardly need say that all this is something that the FSA has been keen to address for a long time. Regulators, commentators and analysts have immediate access to the tools necessary to monitor and scrutinise businesses more efficiently so there are fewer places to hide.
The retail distribution review is also all about engaging the consumer and adding clarity. It is commendable that staff want to pass their professional exams but firms need to understand what their clients want. They also need to be honest with themselves and admit that perhaps their business models need to be altered to become clearer and more transparent.
Wise advisers are already taking another long hard look at their businesses to see how they can improve the market’s perception of their conduct.
Conflicts of interest arise in many guises. Wherever proper standards of conduct and behaviour have been insufficiently defined, there is always scope for them to spread. Every firm needs to ensure it has a robust system in place, continually monitoring the company for any potential weak points. The remuneration structure should be looked at carefully. Commission is not a bad thing but there absolutely needs to be transparency here as far as clients are concerned.
Over the decades, one of the biggest issues this industry has had to come to terms with is the degree of complexity in many of its products and services. Historically, inconvenient detail has been shamefully omitted and there are still instances today when too much ill-explained technical detail is included, the apparent aim being to obfuscate and confuse the end user. Such failure by providers to recognise their obligations and subsequent breaches is on occasion nothing short of breathtaking.
The PFS has adopted value of advice as a theme for 2008. We see this as a clarion call to firms to become confident in what they deliver, not to hide behind commission and to make sure clients fully understand what they are buying.
The Chartered Insurance Institute and the PFS have long acknowledged the importance of a code of ethics requiring members to identify and so hopefully avoid conflicts of interest. Members are bound by a common code but what of those who choose not to align themselves with a professional body? In such instances, market rules take the place of any codes, hence the RDR document which seeks to tackle these very issues and without which consumer confidence would be much harder to win.
Tim Eadon is chief executive at the Personal Finance Society