On more than one occasion, I have referred to my 10- minute bin test. This is where I read a product brochure in 10 minutes and if I cannot think of how to adequately explain it to a client, then I throw it in the bin.
As I see the bills mount in respect of Arch cru, I wonder just why Mark Hoban could not think of an alternative to the Financial Services Compensation Scheme methodology of raising funds.
Now no adviser should sell what they do not understand but is that the core of this issue? I don’t think so. The complexity of product design is not new and for far too long the product designers have been able to point the finger at the advisers.
I recall hybrid group pensions where they were defined-contribution but with a guaranteed minimum pension underpin. These plans were sold on a marginal-cost basis.
As always happens, the margin widens and it gets more expensive, then the plan is terminated and the losers are the members. I can recall firms complaining about these corporate plans, only to be told by the providers: “You sold them, we only designed them.”
We are always agonising over the role of broker consultants after the RDR. Perhaps their role could involve product competency or licensing if you prefer.
In addition, the providers would be required to pay into the equivalent of an Abta bond, their payments being based on the complexity and depth of risk of the product.
The current determination of an experienced investor has to a large extent been ignored. If you doubt this, consider how many unauthorised investments have been made in relation to a sensible estimate of the number of experienced investors in the UK.
Do not get me wrong, there is nothing wrong with complexity, provided that the risk can be determined, but the adviser does need to take extra care. Instead of shoehorning people into execution-only, perhaps we need another category – how about “provider responsible”. This would certainly make the providers more careful in their distribution, would it not? No longer would we see these products sold in tranches but they would be sold through those advisers that really understand them.
There is no doubt that to get to a simple conclusion may require a degree of complexity but that does not absolve the product designer from their inherent liability as the producer.
I have said before that the coffers of the polluters should be exhausted before anyone else is asked to contribute. The polluters are the provider, those who promoted it and those who sold it. I realise that some of the networks would be badly hit but then they are meant to be watching their members’ activities. If they have not been, they have reduced their costs and those reductions can cover some of the compensation due.
What we need is an industrywide working party. I would be happy to give the time and I am sure we can come up with something that would be acceptable.
As to Hoban, if there was a report card issued on his deliberations, it would state “must try harder”. This is not a time for sound bites, it is time for action. It would be tragic if we lost good quality adviser firms, especially those already at level four and transitioned to an RDR-ready charging structure and proposition.
Robert Reid is managing director of Syndaxi Chartered Financial Planners Twitter: @reidremoney