When you are facing a momentous shift in environment, it is essential that you do not draw yourself into your shell. This is the time to meet with your peers to discuss matters affecting the industry.
It is clear that far too few firms know their costs and fewer still have considered the likelihood of current clients being content to sign up to advice costs that are out of proportion to the service received.
Another realisation is that the fund managers still have not worked out that they will come under increased pressure to slim their margins. Many seem to think that a small reduction will be sufficient to keep both the advisers and their clients content. This has to be one of the biggest misconceptions I have seen in my lifetime. They still talk about the annual management charge and the total expense ratio, neither of which represent total charges, and so reductions to the headline indicators of AMC and TER may have a cosmetic effect but not the level of change that is clearly required.
Equally important is the cessation of cash rebates as we strive for complete transparency. The effect this will have on the fund supermarkets is being played down but, given the quantum, this does not hold water.
The Investment Management Association has belatedly produced a disclosure document that is as easy to digest as the instructions for a kitchen cabinet. Those old enough will recall the TV ad that said a nine-year-old could assemble their units but as they were being assembled by adults with no access to a nine-year old, this was no comfort whatsoever. This document is numerical in the majority, with no diagrams or pictures to aid its comprehension.
At a previous event I was stunned to find out just how many firms use a DIY attitude to risk questionnaires. When the FSA comes to call, I would suggest that it is likely they will be found wanting. Just how they will explain this is anyone’s guess. The recent column by Chris Gilchrist was one up for the artisans (those advisers who never take the same route twice – in respect of investment advice or anything else where analysis is a requirement) to rubbish the use of psychometrics on the basis of a paper that would not have passed a peer review for a professional journal, shows that the importance of rational comment cannot be understated at the time we strive to improve the professional standards of all advisers.
It is the aversion to an adequate process that has led to unsuitable investments being recommended on far too many occasions. This evident preference for a lack of process demonstrates why a standardised glossary of the terms to be used in the risk conversation would be invaluable and could be a major step forward.
That is why these meetings of IFA firms are so important as they provide the opportunity of discussion with others facing similar problems. As we head toward our next meeting, which will be just before the RDR takes effect, it will be fascinating to see if all the propositions will prosper or need to change course.
Robert Reid is managing director of Syndaxi Chartered Financial Planners