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Upsetting the `a la carte

Why should a potential client pick a financial adviser and a firm to provide them with financial advice opposed to a competitor?

Let’s face it, most IFAs and their businesses are advising on similar issues to financial advisers down the street. We may think we have unique selling points, better technology, a great wrap, a more enticing deal and so on, but in truth, no one has to buy from us.

The most important difference between financial advisory firms is their chosen regulatory status and their selected permitted business categories. Many advisers will say “It’s me they buy” which is important but the more discerning client will be more interested in the quality of the advice provided than an advanced display of NPL or other psychology tricks.

“If it ain’t broke don’t fix it” my old gran used to say. But financial advisers will have to change the way they explain to clients – up front – what status they have, whether that is independent, multi-tied or tied.

The EU internal market commissioner is about to remove the FSA’s rules enforcing advisers to use the payment menu and the initial disclosure document. For those of you who use these documents properly and take the time to explain what they mean, you may be relieved that they are going to the paper mountain in the sky.

To explain the content of these documents to a client who wants to ask questions can take over 30 minutes – a big chunk of the time spent with clients.

The menu disclosure document – “keyfacts about the cost of our services” – was introduced with depolarisation from December 1, 2004. Each firm is required to state in its menu both its own maximum rate of commission and the market average for certain product groups.For those readers that have never had to produce a menu or an IDD document before you start doing your proper job, let me share a few of my experiences.

I have heard clients tell IFAs to ask for more commission from the product providers because why should they get less than the banks which make enough money anyway? Many clients are also horrified that they are being told about complaint procedures and compensation in the initial disclosure documents before any advice has been provided. Clients are given these documents and then valiantly try to understand them but their eyes glaze over and they do not remember anything said about the products recommended or the financial advice provided.

This is not just me taking a dislike to bombarding the public with reams of paper they do not understand. The FSA has published research showing the menu failed to achieve its objectives of reducing commission levels and increasing fee-based advice.

I hate to say I told you so – rest in peace menu and IDD.

Why is this happening? With the introduction of Mifid, all member states need to adopt this huge directive into their country’s financial rules and regulations. Each member country may apply to have regulations on top of Mifid. The FSA asked earlier in the year for a few additions, including retaining the menu and IDD. However, the EU internal market commissioner is keen not to have each member state having its own peculiar additions as this would not result in a single European financial services market.

From the delayed UK Mifid start date of November 1, financial advisers will have to abide by the minimum disclosure requirements of Mifid. However, do not assume this will remain the status quo, as the retail distribution review will probably contain suggestions for disclosure documentation replacements.

I believe the answer is not in the need to give clients more complex documentation – it is in an online register that is held independently and holds the status, permitted business and qualifications of all financial advisers.

Kim North ( is director of Technology and Technical.


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