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Ron to the rescue?

Unlikely as it seems, Ron Sandler may yet turn out to be IFAs&#39 knight in shining armour – or at least their knight in tarnished armour as a result of his recommendations to the Treasury published last week.

He appears to be advocating a remuneration system, which has been welcomed by many within the IFA community as a watering down of the FSA&#39s ideas in CP121.

Many IFAs are starting to see his proposals as just the ticket to dispel much of the gloom and doom which followed the publication of CP121.

Scottish Life head of communications Alasdair Buchanan says: “We think this is fundamental change and good news for IFAs. It provides just about everything we could have hoped for.”

Aifa director general Paul Smee believes Sandler&#39s paper shows that over the past year, he and his team have been listening to the industry, something he believes the FSA failed to do as it put together CP121.

Smee says: “While we are still looking at the practicalities of implementing Sandler&#39s proposals, we believe his ideas represent a more sensible and more practical way forward than the original proposals put forward by the FSA in CP121.”

Sandler has proposed removing the involvement of providers in determining how much IFAs get paid. Advisers instead would negotiate a payment with the client and then decide how that payment was made.

This payment could be made upfront through instalments as a percentage of the original investment, similar to commission, or as a percentage of the assets under management, similar to trail.

A cheque would still be made out by the client to the provider, which would alleviate the problem of IFAs handling money, which most are not regulated to do.

Like CP121, only advisers who satisfied these requirements would be able to call themselves independent but, going one step further, they would also have exclusivity over the term adviser.

This is a move that has been called for by many in the industry for some time, notably the Consumers&#39 Association, which did so in its response to CP121. At the time the watchdog made the point that only IFAs really offer advice so it makes sense that only IFAs should be all-owed to call themselves advisers. It appears Sandler agrees.

As in the FSA&#39s DPS proposals, the remuneration plans would only apply to IFAs, the other tiers, which would now be called “salesmen” or “product distributors”, could still operate on a commission basis.

Sandler argues he does not believe regulation is the solution to all the evils of the world. He says he desires to create a distribution system with IFAs at the pinnacle in terms of standards of service but with others beneath them.

He says: “I do not think regulation is the answer to everything. I do not think commission is a practice which should be banned from the marketplace but I think it should be made very clear to the consumer that the adviser they are going to is paid by the provider with little say on their part how much they are being paid.”

But there are those in the industry who still have concerns about what Sandler is trying to achieve. The LIA says it is worried IFAs are going to be expected to operate their businesses in a very different manner than they currently do, something they may be reluctant to consider.

But others argue that this is akin to burying one&#39s head in the sand as there was never much chance IFAs would not face some degree of change.

The LIA is also concerned that if people are shown what the provider&#39s cost of a product is, they will be reluctant to pay anything further to the IFA.

LIA director of public affairs John Ellis says: “The issue that will have to be dealt with is people wanting to cut out the middleman and go straight to the provider once they have seen the wholesale price.”

There is a chance this could happen but what Sandler is hoping to achieve is to develop a culture where financial advice is recognised as a professional service that savers do not mind paying for.

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