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Stub out filters

In the throes of major reform and the battle for 1 per cent products, we have to remember that this is about meeting the needs of ordinary people needing access to unbiased advice to diagnose their needs and where, appropriate, recommend quality, value for money, flexible products.

Consumers have many financial needs but the big issues now are pensions, the massive rise in personal debt and how we manage the fallout from the explosion if the economy falters. Restructure must deal with all these issues at the same time.

We see three basic groups of consumers – those who need access to advice on debt, those who need access to general financial healthchecks and core regulated products to meet basic life needs and consumers who have very complex needs or want added-value discretionary products to enhance their lifestyle.

Our focus is on the first two. The Government, FSA and parts of the industry are championing non-advised filtered sales for stakeholder products. The idea is that a combination of regulated products and filtered questions would give the necessary protection without loading the industry with costs.

The key point is that the consumer, not the salesperson, would be responsible for the decision. This is an unacceptable trade-off. It is not hard to imagine the incentives for misselling. Moreover, if the products are so suitable as to not require regulated advice, then there is not much to lose by having that regulated advice.

We published our product regulation paper five years ago and stakeholder products are a leap forward in terms of simplicity, clarity and value. But even these need to be sold with regulated advice to ensure suitability. But how can we meet this huge unmet need for consumer-focused unbiased advice within the constraints of a price cap? The Sandler proposals and depolarisation will actually reduce access to unbiased advice so a new approach is needed.

Two years ago, we proposed an idea to the Treasury for a two-tier advice system for the private sector consisting of a general or para financial planner (similar to the distinction between paralegals and solicitors or paramedics and doctors) who could provide general financial healthchecks and advise on stakeholder-type products where appropriate and who could refer cases to specialist advisers who would advise on complex needs and products.

Then, last year, we published our concept for a National Financial Advice Network showing how a network of community, charity and employerbased general financial planners could complement the private sector (see chart on left).

The industry should not or could not be expected to meet the needs of every consumer, especially those who need advice on debt issues or a general financial healthcheck which would not create sufficient revenue streams. We are, in effect, talking about a national financial health service created using a new form of public/private partnership. This will require a degree of public money but there is simply no other way of meeting the huge unmet need for unbiased advice to deal with so much consumer detriment.

But this needs to be accompanied by a huge cull of product providers and products. There are simply too many, for example, 2.7 UK retail funds for every listed share. This is a crazy state of affairs and cannot continue. With overcapacity like that, it is not surprising the industry is squealing about price caps.

To conclude, we think that a combination of our proposals for new advice regime and the necessary consolidation would change industry economics to make low-cost products sustainable.

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