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Value added

Within the June 2007 RDR vision, we were exhorted to learn from the past. I therefore find it instructive to recall what did go on in the 1980s.

These were halcyon days for direct-sales organisations, with new unit-linked offices seemingly springing up overnight. Who recalls such names as Criterion, City of Westminster, Canterbury Life and General Portfolio?

They were both good and bad times and while many of these products were comparatively poor value, the salesmen performed a service by introducing pensions and life insurance to consumers who otherwise would never have saved or insured.

The bad bits were that prior to 1988 anybody could sell to the public. No authorisation, no rules, no regulation and no Ombudsman. In the main, pensions and savings plans available from direct salesforces were expensive, with poor transfer and surrender values and lamentable investment performance.

The advent of regulation unleashed a growing consumer awareness that independent advice was of greater value than the tied variety. The direct salesforces gradually disappeared, as did the industrial branch offices.

By getting rid of these bad value direct sales and industrial life offices, we simultaneously reduced financial services access to those consumers that fail to voluntarily make provision. The original RDR document suggested that any plan might be better than none and back in the 1980s this is what consumers were getting.

What was the problem? Was it bad selling practices or was it bad products? It is certainly true that the current range of products, particularly pensions, are more keenly costed with no initial units or lengthy periods of low allocation.

As a result, the early years transfer values are better. However, without an inclusive marketing allowance – that is commission – they are not being sold. So the dilatory consumer is worse off.

Nobody wants to see General Portfolio-style plans returning to the market, nor do we want to see peddlers of policies doorstepping and irritating us all, but we all want to see a greater pension take-up.

The challenge to the industry is how to design good-value savings products that include a sufficiently worthwhile incentive that IFAs will prospect and sell them.

This challenge is not just to the product manufacturers but also to the FSA because the signs are that October’s RDR publication will push ahead with such products for “guided sales” but not for IFAs.

I have a number of rhetorical questions. Is it socially beneficial if more consumers buy products? Is it advantageous to society for the reluctant consumer to be persuaded to buy product solutions? Is it fitting that individuals should strive for self-sufficiency and not rely on the State? For years, we have been fed the demographics showing that funding the state pension will prove untenable by 2030, so if individuals do not make provision now, what will happen?

Financial services is seen as a completely different beast to other sales environments. We are perpetually haunted by television, radio and billboard advertising encouraging us to buy some of this or some of that and to seek compensation about the other. Frequently, these are products or services we simply do not need.

Pensions and protection insurances are products we all need yet barriers of design and regulation are erected, making the persuasion and sales process inordinately difficult.

The true RDR challenge is to enable whole-of-market advisers – both commission and fee-based – to sell more products within a simplified regulatory environment without the threat of our old enemy, consumer detriment.

This will advance the consumer cause far more than leaving them to the merciless banks.

Alan Lakey is a partner at Highclere Financial Services

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