Not a new question, of course, but has it ever been asked of the regulator? I am talking about the FSA here, not the Financial Ombudsman Service.
I am no psychologist but over the years I have analysed the purchases and sales that I have been involved with and it seems to me that consumers fall into three distinct groups. There are those that recognise a need and take the necessary steps to resolve it.
Those that retain an awareness of some lack of provision but do not take those formative steps and then there are those who have little inkling or interest in investigating such mundane matters. Within each category exists one or more sub-genres based on matters as intelligence, confidence and affordability.
For some years, my company’s business has been dominated by mortgage arrangements and, in this instance, a clear awareness of a want – ownership of a new property – has galvanised consumers into taking those necessary steps, that is, searching out a suitable mortgage.
Once the property has been purchased, the awareness of the need to regularly review the mortgage arrangement takes a back seat to other matters as it is no longer such an enticing prospect.
In other words, clients buying a property approach me without any prodding or persuasion but when their fixed or discounted period ends they often need a push to review matters, even though it is to their advantage.
With other financial areas, such as protection, the situation is similar. The psychological urge to search out a solution to satisfy a need rarely applies with personal and family protection.
Most consumers have some perception that they are underinsured or uninsured and often entertain vague ambitions to look into the matter.
Notwithstanding the public’s general ignorance concerning the range of products available there is also a deep-seated refusal to take those measures necessary to solve these problems such as approaching an adviser or financial services company.
This is nothing new and, more topically, is not a model which has become broken or been warped over the past 20 years. This is reality. A reality which most professional committee members fail to recognise, perhaps because they do not live in the real world where surplus funds are limited and the capacity to recognise and respond to a potential problem has been supplanted by the latest excitement on Eastenders or Arsenal’s recent Champions League performance.
An analysis of my company’s protection sales reveals that the majority of protection plans are bought when dealing with mortgage arrangements.
Of those which are not mortgage-connected, the majority have arisen because I broached the subject rather than by the client approaching me. In other words, I sold the concept and the product.
Now if I am right, then it means that the wholesale regulatory tinkerings of the last 20 years, culminating in last year’s RDR proposals, are actually to blame for the public’s failure to save and insure.
The most obvious victim of the various regulators has been the salesperson, with estimates showing an 85 per cent reduction over the past 20 years.
The word salesman is invested with a negative vibe and sneered at by many, including some holier than thou advisers who prefer the lustre of the adviser title.
Yet that is what we do, we sell the concept, we explain the problems, provide the insight and sell the solutions. In this regard, financial salespeople are of greater worth to the community than fee-based advisers who await the call of their next high-networth client.
So, does the regulator believe that financial solutions, that is, products, are bought or sold? If they accept that the solution to the current retirement and protection gaps is the take-up of greater numbers of dedicated products then the question is somewhat rhetorical.
Whatever comes out of the RDR consultation must take into account that greater numbers of products need to be shifted.
It must accept that selling solutions rather than waiting for consumers to purchase them, is the answer. It must also accept that enabling lesserqualified advisers to sell high-charging products to unsuspecting consumers under the primary advice banner is not treating customers fairly.
Alan Lakey is a partner at Hichclere Financial Services