The long-awaited Sandler consultation document reviewing retail financial
services was published last week, leaving IFAs reeling over much of the
The document appears to draw conclusions about its outcome even before it
starts and IFAs along with fund managers and life offices look to be in for
an early bath.
Rather than being an introduction to a review which has the potential to
engage the industry in a vibrant debate, Sandler seems to have it in for
the IFA community.
Three main “observations” concerning the IFA market were included in the
document. The 32-page document claims IFAs are more concerned with racking
up high commission payments than offering best advice to clients, have
little idea about investments and, when they do make a recommendation on an
investment-based product, rely too heavily on past performance to justify
The comments about commission were a surprise to many, especially with the
revelation that the FSA is investigating whether IFAs are guilty of having
product or provider bias.
Sandler says: “It is hard to see a clear relationship across products
between commission paid and costs incurred by the channel. The complexities
of commission structures and indirect benefits with which product providers
can reward the distribution channel may mitigate the effectiveness of this
regime. In practice, most consumers do not understand that they may end up
paying the commission cost through the front-end charge.”
He then asks: “Is there a case for regulatory intervention in the setting
of fees and commission levels?”
The wording of this question revives the debate over a cap on commission
and fees which most thought had died with the Office of Fair Trading ruling
At that time, the OFT decided that the maximum commission agreement was
According to the OFT, nothing has changed in 13 years that would make the
situation different. This has not deterred Sandler, however, who appears
convinced that commission is at the heart of all the wrongs in the industry.
He says: “At the same time, such remuneration arrangements also have the
effect of rewarding advisers for maximising sales volume rather than
necessarily for providing the best advice for clients.”
IFA McMullen Insurance Brokers adviser John Charlwood rejects Sandler's
claims that commission is skewing the industry.
The Bournemouth IFA, whose income comes almost exclusively from
commission, says: “It is very easy to snipe from the sidelines. Quite
often, the specific commission deals that are negotiated do not endanger
the client at all. We have earned a lot less than we could have otherwise.
I regret that the maximum commission agreement was ended. Its existence
would stop people like Sandler from making comments like that.”
Liverpool IFA Halton Insurance Service director Mike Fry says: “Sandler is
painting everyone with the same brush.”
Sandler also strongly criticises the level of investment knowledge among IFAs.
Without including any evidence, the document accuses IFAs of spending more
time on choosing a provider and tax planning than on the underlying
investment strategies of products.
The document says: “It has been suggested that advisers tend to
concentrate on issues of product design, such as tax treatment, and that
they do not have a comparable level of expertise in investment issues. In
particular, it is argued that both advice and the regulation of advice tend
to focus on the issue of which provider and which product to choose rather
than on the underlying investment strategy.”
IFAs, while recognising that Sandler may have a point on a certain level,
reject the assumption that they can be lumped together in this way.
Hulbert Financial Services proprietor Jeremy Hulbert spends a lot of time
advising on investment matters. He says: “There are plenty of IFAs who have
taken the time and effort to learn about investment. It is a little bit
unfair of him to make these comments at this stage. If there were more
investment courses around, more IFAs would take the effort to update their
But some IFAs, specifically bigger players which specialise in investment,
agree with the sentiments expressed in Sandler's paper.
Hargreaves Lansdown head of research Mark Dampier says: “The majority of
IFAs know very little about investment. There is virtually nothing about
investment in the FPC exams. The problem is that the word IFA has become
synonymous to a GP position.”
The LIA also has concerns about the level of investment knowledge among
IFAs. It does not blame IFAs themselves, however, but, like Dam-pier, makes
the argument that the exam regime is not sufficiently comprehensive.
Director of public affairs John Ellis says: “We have to view this review
as a blueprint for the future of the industry. Maybe we can exorcise some
of these ghosts that plague this industry. The bit about investment
knowledge is music to our ears. There are sufficient numbers of IFAs that
do not have the wherewithal to do this job.”
The FSA is conducting a review of training and competence within the
industry and part of this includes a look at the exams IFAs must take
before they are allowed to begin advising. It is planning to release
proposals towards the end of the year for updating what may be required.
Spokeswoman Jackie Blyth says: “We want to ensure there are no gaps. We
want to think about what is now involved in the exam regime.”
With the deadline for res-ponses to the consultation due by the end of
September, IFAs have a short period to convince Sandler of the error of his
assumptions. Given that Sandler apparently has the confidence of the
Government behind him, it is essential that IFAs stand up and make their
Sofa chairman John Porteus sums it up well. He says: “This whole review
means business. The full weight of the Government is behind it.”
IFAs be warned.