Sometimes, it pays to have a short memory. Last year we were told global warming would require us to change our habits, that long hot dry summers were here to stay and we might even be able to do away with our brollies.
Recent history has proved different. This summer’s weather has emphasised the need for consumers to be well advised. Too many victims of the local floods are uninsured, raising serious questions about the advice they received.
I quote this as an example of the real need for consumers to have access to, and to act upon, good advice, even when their first thought might be the lowest cost option.
The FSA has been looking at this as a part of its Retail Distribution Review. This should not be looked at as the definitive document, rather the start of a debate. It could be argued that the differences between the investment and mortgage markets are such that a different regime would be appropriate, but there are enough common factors that require addressing.
The FSA states that its aim is to have a retail market which is characterised by capable and confident consumers; clear, simple and affordable consumer information; soundly managed and properly capitalised Treating Customers Fairly (TCF) focussed firms; and risk and principles-based regulation.
It identifies a number of factors which could jeopardise these aims, including the consumers’ low level of financial knowledge; the complexity and range of products; the way in which advisers are remunerated; and a lack of knowledge on the part of advisers.
The business market is continuing to develop and change. Distribution has seen a significant move towards the intermediary channel, but how will the growth of the internet affect it?
Technology is now available to enable the consumer to assess the product information necessary for product selection, and on-line applications could bypass both intermediaries and branch networks.
In a recent review of investment advice, a Treasury review by Otto Thoresen asked how help can be given to those consumers whose level of financial capability is limited. These issues arise just as much in the mortgage market as in the investment arena.
Manufacturers also need to be aware of the issue and concentrate in making their products, and the way they are described, as simple as possible. Under the TCF environment, the product manufacturer needs to take full account of the needs of the ultimate consumer and will face heavy criticism if their products can only be understood by sophisticated consumers or most competent advisor.
Where advice is being given, the FSA proposal suggests the future might focus more strongly on the qualifications and the professionalism of advisers.
One way they might seek to retain their advantage is to ensure that their knowledge and skill levels remain such that consumers will continue to be willing to buy access to their advice.
With consumers becoming more savvy, maintaining the knowledge gap demands that the adviser is ever more knowledgeable and delivers their client a highly professional service.
By doing so, the adviser will safeguard their business and also be best-placed to benefit from any regulatory dividend.
Richard Fox is chief executive of the CII Mortgage Professionals Society.