The forthcoming review on polarisation could be divisive and damaging with a negative impact upon all parts of the industry. However, have we fully considered that this could be an opportunity to work co-operatively? It could have a positive effect on the image of the whole sector, and reduce the blood pressure of those working in it.
There is no doubt the review is extremely important and that it will have a direct and financial effect on all affected parties in the industry. In such circumstances, vested interests tend to come to the fore. This is not surprising but the danger is the most powerful voices win the arguments, which may not always be in the best interests of all those involved.
Before we get into the debate and make our views and positions clear, it would be a major step forward if the entire industry could, at the very least, agree on the criteria by which analysis can be undertaken and final recommendations evaluated.
Such criteria will provide the benchmarks which are important to all parties. If there is no starting point, then we will simply re-run the arguments which have been so well rehearsed in the past and fail to take ourselves forward.
Of course, identifying a set of criteria will not be easy. This is partly because all parties view the issue from different perspectives but also because the position of different stakeholders must be considered. It is obvious that these may not be totally compatible when trying to account for the interests of consumers, distributors, providers, regulators and government.
It is essential that we start from the perspective of the consumer. On the basis of all the research which has been conducted over the years,I would suggest the following consumer criteria.
l The widest possible choice of advisers, providers and products. This drives competition and should ensure that everybody can find the best possible answer to their particular financial needs.
l Crystal clear information. This has to cover adviser status, who is responsible for what and exactly what is being recommended and bought. The more effective this is the less people will feel suspicious, misinformed and missold.
l Access to market. This has to be easy, with as many channels and entry points as possible underpinned by objective advice. This will encourage people to deal with their financial affairs in a responsible and convenient manner which suits how they want to conduct their business.
l Excellent product performance. This is straightforward – low charges, excellent investment performance and “guaranteed guarantees”.
If these consumer criteria are the starting point and we agree that the consumer is king, then the criteria for other stakeholders may need to be traded off to give consumers a really good deal.
In terms of the value chain, distributors, including advisers of all types, come next. In the context of polarisation their criteria could be as follows.
l Crystal clear status with no grey areas, straightforward disclosure (of status, charges, etc) and a process which is easy to explain to consumers.
The benefit here is not just simplicity but also to be seen to be open and honest with the public. “Nothing to hide” would be a good campaign slogan for the industry.
l Level playing field. Effectively, the same fundamental basis of rules for all regardless of status, providing the same market opportunity to be able to promote their services and make it plain what their particular benefits are in comparison with others.
l Low costs and an opportunity to make a profit. This will not just be borne out of good business practice but also an efficient compliance regime, regulatory processes which are sympathetic to the business process and which can be mapped on to it. Less paper, to aid communication and cut costs must also be part of the picture.
The criteria for providers will be similar to those of distributors. They will certainly need clear status definition and associated processes which are straightforward and efficient. In addition, they need access to market through a wide range of channels.
This is essential to support the dynamism of the industry as well as satisfy the widest range of access to customers. The final requirement for providers relates to their business model which means the following must be maximised.
l Opportunity to meet consumer needs and react quickly to market changes l Scope to innovate, particularly with regard to e-commerce.
l Streamlined and low-cost operations.
l A fair return within the context of the 1 per cent world.
The two remaining stakeholders, government and the regulator, are closely linked. The former sets the overall policy and the latter carries it out.
The published aims of the regulator are to:
l Promote consumer understanding and protection.
l Promote confidence in the system.
l Promote an efficient market by balancing the needs of the various stakeholders, supporting the competitive working of the market and encour- aging good practice.
l Clarity of rules to enable and facilitate the above.
It is interesting to observe that these are close to the consumers' criteria. There are no surprises here. But the rest of the industry should reflect that if we collectively delivered on these criteria, we could achieve complete restoration of trust.
This would unlock the door to unprecedented demand and meet the broader public need that everybody is as financially secure as their means will allow.
Over the past four years much has been said about Government policy and most of it has been pretty negative. In an ideal world, Government criteria must include the following:
l An industry it can trust. If the shift of much financial responsibility from the state to private individuals is to be effective, the Government must be able to trust the private sector to deliver. This goes much further than making rules and setting standards – it is about a meeting of minds and mutual respect.
All sides will have to work at that. This is about a true public-private partnership to fund welfare. At present, if we are all honest, industry and Government are a million miles away from this.
A good deal for consumers. We can see exactly what that means through stakeholder pensions and Cat standards. Make no mistake, these are tough standards to meet but the long-term benefit lies in huge consumer satisfaction and the positive eff- ect that will have on demand. It may seem like a fantasy but think what it would be like to work in an industry which is respected and supported by the public. This means no more scandals, clarity of responsibility and putting mistakes right quickly.
Low cost, efficient regulation. The day to day operation of this industry should not be a political issue taking up the time of people who have bigger issues to deal with. We need to work towards a position where the industry operates in a highly competitive and compliant manner as a matter of course. We can get on with running the industry and government can turn its attention to other matters.
So, can the industry agree on the criteria for evaluating change? There is a lot of common ground, some of it highly practical and some idealistic.
There is no doubt that we need a common agenda for the reform of the industry because the long-term benefits are significant for all stakeholders. It is essential that we should offer our views on criteria when making our submission to the regulator for the next stage of the review, then a real balance of interests can be struck and we will be more likely to engage in a constructive debate well above the level of a public row.