The key findings of research among consumers carried out by NOP for the FSA were that:
Consumers generally find it difficult to compare financial companies or advisers, mainly because it is thought to be confusing
Over 25 per cent of respondents were not aware of how firms are rewarded for selling products or services
The majority of respondents thought that financial companies should tell consumers what they earn from a sale and at an early state, either face to face or in a separate document.
Eighty-one per cent of res-pondents thought a menu-type leaflet would be a good idea.
As an industry, we should consider this a wake-up call. A great deal of money is spent each year by financial companies marketing their products. Regulators are becoming less tolerant of obfuscated literature and charges and their view is becoming reflected in the approach industry trade bodies such as the IMA.
For IFAs, these times are particularly challenging. The changes brought by depolarisation have reignited the deb-ate about the best way to help people achieve their financial goals. Instead of being the death of the IFA, this new era could usher in a golden age for those in the business of being an adviser – whether as an IFA, a client manager in a private bank, a multi-tied adviser or a branch-based consultant.
So what is good advice? In all cases, the common features of a successful process would be the developing of relationships, the provision a financial healthcheck, a call to action and some ongoing review and service. Differences in advice will change according to cli-ents' varying levels of need.
This could be provided by differing categories of adviser.
Low-level advice (generic inf-ormation, decision tree assistance) tied agents and bankbased consultants Mass market advice (foc-used fact-finds and basic needs analysis) tied agents, bank based consultants, multi-tied advisers and some IFAs.
High-net worth (full financial planning services) IFAs and top-end multi-ties.
All these advisers will be important and have key roles in promoting a savings culture and the nation's financial well being. In this scenario, the IFA will remain the benchmark adviser in the marketplace and the quality of advice will evolve from a higher level of competence. The genuine adviser will emerge as the long-term winner and the product-flogging mentality of the past will be relegated to the fringe of the marketplace. This process can only be enhanced through a clearer charging structure.
The FSA has stated that its aims in introducing the imp-roved disclosure of commission and commission equivalent are:
Reduce the potential for commission bias.
Make consumers more aware of the cost of advice and the payment options open to them at an early stage in the sales process.
To empower consumers to shop around and negotiate.
At first sight, it seems as if the impact of this places the adviser at a disadvantage. However, for IFAs, this is also an opportunity to demonstrate how valuable their advice can be. Fee-based advice is an area of much debate and inevitably becomes a more important part of the advice process. The menu-driven approach is a big step forward in promoting fee-based advice but is still too geared towards a transaction-oriented approach.
People wanting a full financial healthcheck are often not looking to buy a product and may not have an immediate need to take action which can generate commission for the adviser. Peace of mind and confirmation that existing financial plans are on track are valuable outcomes to a consumer. As with other professions, such advice from a highly trained professional does incur a fee.
In this new era, the role of a fund manager will still obviously include the manufacture of a high-quality investment product but will also have a responsibility to provide quality training and support for all advisers to ensure that IFAs are in a position to deliver the most comprehensive advice.
Investors will demand grea-ter clarity and understanding of products as the investment environment becomes increasingly complex. Regulatory and consumer demands will grow and advisers will need to have a better understanding of some key areas of fund management products – investment process, style bias, risk management, tracking errors and asset allocation.
A narrow, performancerelated advice process will not suffice in the reshaped financial world, in particular as end investors become increasingly aware of charges.