It is that first-credit-card-statement-after-Christmas feeling – you know you spent more than you meant to but in the cold light of day, the magnitude of your generosity hits you.
Last week’s bills from the Financial Services Compen-sation Scheme had an even more salutary effect.
We need a proper process so that those who profited from these products pay when they are shown to be flawed and compensation is due.
So, what should that order be? I think it includes a wide range of firms and individuals. Some have suggested just the IFAs who sold (this includes the spurious non-advised sale) the products but I would go further. We need to consider the product development cycle through to the marketing of the products to IFAs and to clients. Where a network has put the product on a best buy panel, they too are culpable. The idea that they keep their “wedge” is not tenable.
This way, all who earned from the sale of these products would pay to make the compensation fall on those who erred and not just everyone by default. This should not be capped by commission earned but on the value of contracts sold. It would include the adviser, the firm and the provider plus any external consultants who designed the product. The latter seem to escape scott-free, yet often they are the driving force and the main recipient of the profits.
Back to non-advised. I realise I mentioned this in my last column but it is essential that this method of distribution is put to the sword. Or better still, make the banks write to all non-advised customers and ask them what happened. I suspect they will all say they received advice, so which of the banks has the you-know-what’s to try this idea out?
We are still left with the cost of delivering advice being too high. This is no more apparent than in group pensions. If a fixed cost is applied, the lower paid suffer more than the higher paid and if the charge is a percentage, the opposite applies.
The reality in consultancy charging is that it cannot and will not work as some IFAs set up small group schemes to enable post-RDR commission. Providers are privately considering withdrawing commission across the board. We need to have discussions with the FSA and the FOS if group advice is going to be workable in practice.
I have no problem with liability for my advice but I do need clear guidance and I do need a level playing field where those at fault are first in line to pay.
The FSCS is meant to be a last resort but instead it is currently better described as the default choice. An urgent debate is essential and the objective of that debate must be to change the status quo, which is bankrupt of fairness.
There is no doubt that time is of the essence and making people liable in the manner I suggested is not something that needs lengthy consult-ation. After all, the FSA sees merit in product regulation, so perhaps this is the oppor-tunity to make people see that poor design is at their peril and not everyone else’s.
Robert Reid is managing director of Syndaxi Chartered Financial Planners