Jumping back in time, I can recall attending a meeting with the Office of Fair Trading at a time when the Society of Financial Advisers had lodged a document entitled, Who Are You Working For?
The premise behind the document was to explain that this question was the ultimate test of independence. In other words, if your responsibility was the client, then you could truly claim to be independent.
We never extended this to the slightly batty idea that you would always look at each and every product in every marketplace and all permutations of the same.
This seems to aim for the comprehensive analysis of the universe but in reality leads us to the point of paralysis in advice terms.
Let us take this idea of selection back to first principles. It is quite clear if you are going to operate a business where you can treat customers fairly you have some kind of stable process.
By definition, a stable process will need some form like a matrix or filtered decision. It is therefore very necessary to eliminate options/products at the highest possible level in order to reduce the size of the sample and thereby improve your due diligence on the products which are ultimately selected.
I do wonder if the FSA have also considered the fact that, continuing on this theme, it could be argued that the financial planner who recommends a third-party discretionary manager has effectively given away their right to call themselves independent.
I would argue strongly that the true definition of independence is someone who is independent of thought, and, at the time of giving the advice, has not previously selected a product. Separating the process into several distinct steps, I believe gives greater consumer protection than coming up with labels/titles that the public will not understand.
As I have said before, it is all very well for people to sit around in rooms drinking their decaffeinated coffee, determining what titles are right for “the public” but the reality is that the public will determine the titles themselves.
It is therefore more important to determine what we expect the public to consider what being independent means rather than what we tell the public is independent.
This is a crucial point and something which people have to understand. The problem has not been helped by those in the independent sector promulgating this some- what farcical argument that IFAs checked the entire market before they selected any products.
Before you tell me that no one actually suggested that, I can assure you they did. It was part of the actual submission given to both the FSA and he Office of Fair Trading.
Independence is a valuable concept, it is something that people are looking for. In short, what they really want is someone that has no bias. But if the term was not broken, why are so many of the high-quality firms no longer using it in their literature or any promotional matter?
In conclusion, I recently mentioned the survey where, of those questioned, half thought that there was as much chance of winning the lottery as finding a competent adviser, the odds being 1:14,000,000 . I then mentioned the need to “sack” unprofitable clients, only to have one attendee state: “Ah, but what if they win the lottery?” Odds presumably are not one of his strong suits.
Robert Reid is managing director of Syndaxi Chartered Financial Planners