A conspiracy theorist would find it easy to draw links between the bancassurers growing confidence that they will dominate advice, the insurers recent adviser acquisitions and the forthcoming FSA retail distribution review.
Media certainty is that the latter will recommend that commission be abolished and replaced by factory-gate pricing. I am not sure the FSA is allowed by the Financial Services and Markets Act that governs it to act in this way. But I am sure that abolishing commission is the same as getting rid of independent advice in the wider market.
Speak to IFAs and you meet with incredulity and the certainty that such a revolutionary move will be thrown out. They cannot envisage this scale of sledgehammer being used to crack the bond-churning nut. Talk to those who claim to understand regulatory thinking and they tell you that FGP is the FSA’s keenest desire. It is for the – wealthy, middle class and middle aged and thus a fan of fees – Financial Services Consumer Panel.
With my high-net-worth IFA hat on, I can see the theoretical point of FGP in the investment and pension market, where commission creates hidden bias and drag on performance. In practice though, is trail commission a commission? If so, Peter Hargreaves has timed his exit strategy well and those emulating him will need to sell up fast. Perhaps to the manufacturers, who will have no need to explain several prices to each consumer they sell to. The independent adviser will need to break off from the consideration of the client’s needs to explain a pricing structure, whereas the tied agent will avoid this.
As an obscure charge always sells better than a complex transparent one, those who manufacture will have distribution handed to them on a plate.
Equitable Life proved first what all who face the consumer know from experience – very few consumers accept talk of fees when fee-free alternatives abound. Any seller that is spared that duty will enjoy a singular advantage. No wonder the bancassurers are licking their lips.
But if that all sounds like regulation at its stupidest, try extending the logic into protection, as no one at the FSA will yet rule out.
In protection, FGP means that instead of telling a customer that their policy will cost, say, £20 a month, any distributor not owned by the manufacturer will have to explain that whereas it costs £15 for, say, Norwich Union to produce the cover, it costs the consumer £20 a month to buy it independently. This will surely send every consumer to NU to learn that direct from them it costs £20 with no complications – or perhaps a special deal of £19.95 if you buy now while stocks of IFAs dwindle.
In a market where pricing clarity is absolute – pure protection products cost their premium and that’s it – there are no hidden charges – that tricky additional explanation will give tied agents such a huge communications advantage that their dominance will be assured.
I can understand the normal adviser’s incredulity. Why would the FSA back the bancassurers and providers ahead of independent advice? A conspiracy theorist might well find the answer in the FSA’s previous reaction to the European insurance mediation directive. I will tell you more about that next month. In the meantime, fight FGP or leave the wider market fast.
Tom Baigrie is managing director of Lifesearch.