After 20 years in personal finance – and at the conclusion of the sale of Wentworth Rose to Aegon, which should be very good for both companies – I find myself leaving the industry, at least for a year or two. This provides me with a rare opportunity to examine the swamp without worrying about dodging the alligators.
Financial advisory firms are facing a tough time at the moment and have a very challenging few years ahead. I had a great time in the industry, am extremely grateful for the opportunities it afforded me and take huge pride in the development of Wentworth Rose. Nevertheless, the industry I leave is fundamentally different from the one I entered. The old industry had real problems – the new one seems to have just as many problems.
The old industry was all about sales and nothing else. Its great flaw was that it looked for these sales at almost any cost – and the investor often got a rotten deal. In my first year, the leading insurers were projecting on 19 per cent with-profits bonuses and one firm was boasting of a lump-sum plan that paid 13.1 per cent commission. Nearly the only skill needed by “advisers” was sales ability.
The picture today is very different and the number-one requirement is for fully recorded, compliant, appropriate sales. This is a good thing but most IFAs and product providers have handled this challenge badly. The result is that proper financial advice has been made very, very expensive to provide while levels of remuneration have been falling.
The pendulum needed to swing back in favour of the investor but perhaps it has swung too far in that direction.
Nowadays, to sell one simple product takes a huge amount of paperwork and recording, with most firms using minimal technology. Expensive compliance departments have been added, protection from litigation sought using enormously costly and probably ineffective professional indemnity insurance and adviser packages have gone through the roof.
The once cheap self-employed, low-knowledge advisers have been replaced by learned and expensive salesforces – a different world from 20 years ago.
In my view, the things most need by the IFA industry today are:
Better marketing. The new firms that are building adviser numbers without a route to market are building on sand.
Proper IT systems. It is amazing and disgraceful how little progress has been made towards straight-through processing and automated commission.
Less bureaucratic compliance. Misselling and money laundering are important but the civil service-type systems imposed are way out of proportion to the threat.
But perhaps most important of all, the regulators and the courts must move away from hindsight judgment or they will kill the savings industry. It is right to penalise misselling but it is totally wrong to punish a firm for a lack of second sight or for unexpected developments.
Investment, by definition, involves risk and investors and regulators must learn to accept this fact. It seems to be the case at present that any investor who is disappointed by a market return can claim compensation due to lack of warning.
Advisers would have needed near-papal infallibility to have written reports that covered every possible development and threat but, if they did not, they are adjudged to have missold. Regulators really cannot continue to drive using the rear-view mirror.s During my years in the industry, I have seen endowment overquotes, improper pension transfers, Equitable Life's advertising in its last year, dubious pension unlocking and so on. At the time, I thought: “That can't be right?” Why couldn't the regulators do the same?
Hindsight punishment of missales helps no one. The investors have already suffered, the industry's reputation is wrecked and advisory firms are then put out of business for things that could have been nipped in the bud.
Me, I'm off skiing for a year or so. This is a good industry doing an important job and I have been proud to be a part of it.
Philip Rose is the former chief executive of Wentworth Rose