Q: Was commission disclosure not introduced to bring transparency to the general public when purchasing a product? Why, in your opinion, has this not worked in bringing down commission levels and driving more of the public towards fees?
A: I would start by pointing out that commission levels are driven by a range of forces, of which pressure exerted by the consumer is only one.
Furthermore, because of the complexities of commission structures, establishing precisely what commission levels are and how they compare to historical levels is not a straightforward task.
That said, it seems that at least part of the explanation lies in the fact that many consumers do not seem to understand that in the end they pay for commission and believe that these costs are borne by the provider. It is clear that disclosure per se is of limited value unless it is accompanied by real consumer choice and we are still investigating to what extent consumers appreciate their choices post-commission disclosure.
Q: We are experiencing more awareness from our own customers and particularly new customers of the difference between independent and tied advice. Accepting that education does not happen over-night, how can the cessation of polarisation possibly be seen as a positive move just at the time that awareness of differences is growing? Won't the winners in distribution simply be those with deeper pockets for advertising, etc?
With multi-ties, won't the inevitable emergence of high-street banks as leading providers simply increase the tendency to “table gaze” and encourage “rear view mirror investment?”
A: It is very difficult to comment sensibly on the likely impact of the polarisation review when we still do not know whether it will recommend any depolarisation at all. I would also be wary of the suggestion that high-street banks will “inevitably” emerge as leading providers. As I understand it, this development has already been predicted many times over the last two decades.
I also think that it is questionable whether deep pockets for advertising will be the principal source of competitive advantage in distribution. It is noteworthy that there are not really any strong distribution brands at present.
Q: Equitable Life was held up to be the epitome of nil-commission low-cost providers. While the demise of Equitable is a disaster for all concerned, does this not highlight the fact that regulation alone can not prevent things from going drastically wrong?
A: It is not just consumers who cannot judge the financial health of firms or who choose to ignore some of the signals. I cannot really comment on the specifics of Equitable itself – that is not the focus of my review.
But I agree that it is very important for people to understand that no regulatory system can provide a 100 per cent guarantee that nothing will ever go wrong. Nor should it try to – the costs of such a system would far outweigh the possible benefits.
Because any sensible regulatory system must have within it the potential for occasional failures, when these occur, they should not be used automatically to discredit the entire regulatory regime. It is also important to remember that, in the end, any regulatory system relies upon individuals making judgements.
Q: Presumably, you accept that IFAs are in business to make money. If so, why aren't you content to allow them to establish their own profitability? Why are you questioning whether our priorities lie in increasing revenue or reducing costs? Why, like others in business, can't we do both? Are you looking to control our margins as the Government has done for stakeholder?
A: I fully recognise the need for IFAs to be profitable and my question did not imply that there should be any regulation of IFA margins. I am seeking to understand the economics of product distribution and advice provision and how the competitive dynamics work.
Understanding the key business challenges faced by different types of IFA is clearly relevant to these issues. As in any business, the objectives of revenue growth and cost reduction are unlikely to be mutually exclusive and indeed may be complementary but the reality is that one is usually given a higher strategic priority over the other.
Q: Why can't it be accepted that, by simple definition, financial advice is there for those with the means? Those without are disenfranchised simply because they do not have the wherewithal.
A: Of course but, as ever, there is an issue of degree. There are interesting questions to be asked such as whether there is any way of reducing the cost so that more people can get access to advice. In this context, care needs to be taken in defining “advice”, which can mean many different things.
Q: Why is it so hard to accept that many clients can either not be bothered or are not interested in the intricacies of financial matters and want to trust an IFA to advise them?
A: I hope the consultation document makes it abundantly clear that I recognise this des-cription of consumers (albeit somewhat generalised) and that I appreciate that IFAs are an important segment of the market. What I am seeking to do is understand what are the implications of this client/ adviser relationship for how the market works.
Philip J Milton & Company,
Barnstaple, North Devon
Q: For some time, we have been concerned that with-profits policies have been far from appropriate for the vast majority of savers because they are now tax-inefficient, very expensive, inflexible and opaque in relation to charges and deductions when compared with alternatives which are available and proving far cheaper, far more flexible and far more tax-efficient.
My question is to wonder how we can be assured that the industry does not highjack proceedings. Can we be assured that radical changes will take place and that a compromise which fails to address the qualms sufficiently will not be the conclusion?
A: There have been many criticisms of with-profits products but they also have strong defenders. Without having analysed in detail the various arguments for and against, it would be wrong for me to jump to the conclusion that radical change is required.
But if that is the conclusion that I reach, then you can be assured that I will have no difficulty in saying so in my report.