As a schoolboy, I recall asking what the prefix “applied” (for example, applied maths, applied chemistry) stood for. I was told it meant moving from understanding the theory to practical application of the theory.
Adviser-charging has, for many, remained theoretical and, even worse, some see commission offset as the same thing under a different banner.
Let’s consider some examples. A client pays £5,000 into his pension plan every year while the adviser collects £250. Will this cover the costs? Or the client invests £100,000 in a bond and the commission is £5,000. Won’t that exceed the costs?
Irrelevant, you might say, as the adviser tells the provider the charge and the provider collects it, so it is just comm-ission under a different label.
But let’s look at the practical side of applied advisercharging. Most firms will not want self-employed advisers collecting two cheques, so they will use the provider to operate adviser-charging. This will have two effects – it will slow cashflow and, if a case cools off, the provider will need authority to refund only the investment net of the adviser charge. This authority will come in the format of an express declaration signed by the client. Providers’ legal teams will not allow them to take the risk that they cannot reclaim the adviser charge after cooling-off.
The most recent pronouncement from the FSA under-lines the level of flexibility that will be needed to operate adviser-charging. To suggest that providers will use current agency systems to run adviser-charging points to a total lack of understanding of the issues over adviser-charging.
The other party in this con-undrum, the provider, is not being treated fairly by the regulator. This is by far the biggest IT change for some years and to still be making up new rules is not helpful.
Before I finish, I must thank the Investment Management Association. Just when I do not know what to write about, it provides me with managed A, B, C and D. Its excuse was that it could not settle on an intuitive title for varying levels of risk. Isn’t it ironic that the problem was never the active, balanced or cautious label, it is the word “managed” that is the problem. We need dynamic information as current as possible and not three months behind the curve, downward or upward.
Now we have useless sector names and six to 12 months wasted in committees. If I were an investment company trying to trim costs, the IMA membership fee would be high on the list of unnecessary costs. Based on its year to date, I would not book the IMA Christmas party just yet.
And what has happened to the tendering concerning the sector management? It is almost a year since that was announced. The IMA has lost its way and a new and vibrant organisation needs to take its place – perhaps now that Otto Thoresen is in place at the Association of British Insurers, we could see some trade body consolidation.
Whatever happens, we need better quality data, not daft dyslexia-unfriendly titles. The CEOs of the investment providers have been silent so far and it is time they earned their corn and came together to drive change.
Robert Reid is managing director of Syndaxi Chartered Financial Planners