The reality of the personal investment market is that there is an annual shortfall in savings estimated at £40bn, an increasing level of consumer debt fuelled by the ready availability of secured and unsecured finance, coupled with the belief that houses rather than savings will provide the funds necessary for people in their later years.
Rather than the media promoting the value of protection and savings products, they continue to be swamped with tempting offers of finance of every type despite the recent turbulence in the credit markets.
It seems almost irrelevant to be looking at alleged weaknesses in the distribution sector for financial products as a cure to these problems when it is apparent that society, and its attitude to finance and longevity has changed so much.
Only when people realise the importance of long-term planning for the protection of themselves and their families, will there be a reversal of current trends and a net increase in savings and investment. Perhaps the FSA should be focusing on consumer awareness rather than modifying the structure of our industry.
Although these broader forces are defining the savings and protection markets, I believe the distribution sector can do much to aid consumer access to advice, increase its confidence and lead to better planning for the future.
However, this will not happen if the regulator retains its current obsessive suspicion of commission and continues to believe, as shown in the discussion paper on capital adequacy, that “misselling” continues unabated.
Nor will change be achieved if product providers take the opportunity offered by the retail distribution review to restructure the pricing of their products to their advantage, as advisory firms are encouraged to move towards factory gate pricing and the associated agreement with customers as to their remuneration.
I believe the market needs a series of industry generated improvements in the availability and quality of financial advice.
First, advice must be available to all, irrespective of their means. Confidence will not be created in the market by denying the less well off access to advice and instead offering them primary or basic advice.
Most financial advisers are keen to offer their services to everyone. If all customers see this availability, then more people are likely to save and protect their families. Few are going to obtain basic advice if they have little or no opportunity to have a proper review of their needs and finances by someone capable of explaining the options available to them.
Gone is the Home Service agent, another victim of regulatory change, and I can see little chance for basic advice to replace that once prevalent means of providing financial advice to the less well off. Equally, I cannot see the consumer welcoming the “general practitioner”, yet another artificial creation which will delay the development of a more broadly based and professional distribution industry.
For the benefit of all, we need to have a distribution sector which has the confidence of the consumer and provides reliable advice. Few who understand the industry would say that the IFA sector has not endeavoured to do this over the last 20 years. But the challenges which advisers face mean that improved standards of qualification and professionalism must become the norm.
If financial advice is to obtain the status attributed to other professions, then advisory firms must ensure their advisers meet higher standards. Such standards will not come immediately and we have to recognise the needs of mature and experienced advisers, as well as encouraging newcomers to obtain more demanding levels of qualification.
Confidence in the qualifications of an adviser will only come from the creation of a new institute which would act as the professional body for advisers and have the authority to accredit existing bodies such as the CII in relation to the examinations which they set and qualifications which they grant.
By having accredited qualifications overseen by a new professional body, advisers would be able to obtain the right level of recognised qualification and firms would be responsible for the type of work undertaken by an adviser and the consequent advice given in their names.
The result should be that the FSA can concentrate on the regulation of firms, while the new institute is responsible for the oversight of individuals as advisers. Such a distinction of roles would simplify the role of the regulator and allow the institute to create the reality of a truly professional adviser.
Any form of advice has to be paid for and if advisory firms are allowed to run their businesses in a commercial way, unfettered by inappropriate regulatory controls, but encouraged by the benefits of meeting principles rather than rules, then it should be possible to provide advisory services in a cost-effective and readily understood way.
Although commission in its traditional sense might have a number of opponents and receive much criticism, it has served an important role in financing the costs of advice and transactions. And while customer agreed remuneration might have its attractions, there are many complexities and issues to be addressed before it can become the norm. For example, the question needs to be asked as to who pays for any fee built into a product if there is an early termination of the contract and how is one fee spread across a number of products which might form the result of the advisory process?
All these need to be answered before the current system, despite some of its weaknesses, is thrown to one side.
Despite the good intentions of the RDR, the future of the industry will not be successfully defined by artificial distinctions introduced by the regulator, which seems to be propos-ing a further division of an already fragmented industry. It is now up to the industry, distribution and manufacturing to put to one side a number of their sectional interests and agree the way forward on a more unified basis. This will allow us to present to the consumer an easily understood and reliable range of products advised on by firms which offer a broad range of services and financed in a way which the consumer can understand and pay for.
Without this approach, we will see little change from the current situation which is a continuing decline in protection and savings, with the consequent problems for society and our industry combined.