Clients at the heart of the system
The AITC is urging the Government to retain polarisation and rec-ognise the place of investment trusts in developing financial services policy, in its response to the review.
It says the review has wide public policy implications in terms of enhancing compet-ition and increasing the value of investment.
The AITC lists its key principles as placing cli-ent needs at the heart of the financial services system, driving competition through product features and benefits rather than distribution and encouraging fair product competition.
The AITC does not want depolarisation but it recommends ways to reform distribution by improving the standards of both IFAs and salesforces. It says regulation should encourage higher standards for distributors and IFAs should be required to provide a clear statement of all costs incurred by the consumer in the provision of investment advice.
The AITC believes product providers which sell direct to consumers should do so at the same price as they sell to intermediaries so that products are sold direct net of initial and renewal commission.
Director general Daniel Godfrey says: “The only type of adv ice worth having is independent.”
Advice vital on all products
The Association of Private Client Investment Managers and Stock-brokers says it is con-cerned that advice is not given enough of a priority under Sand-ler's review. In its response to
the review of medium and long-term savings, Apcims says advice is essential for all prod-ucts, regardless of how simple they are.
It says: “Consumers lack time, expertise and confidence in inv-estment and savings iss- ues and do not always understand investment products. For this reason, the essential role of advice must not be diminished, reduced or made too costly.”
Apcims says the rea-son for the slow take-up of fee-based advice is primarily tax as fees attract VAT but comm-ission does not.
THE CONSUMERS ASSOCIATION
Consumers will suffer if IFAs are undermined
The Consumers' Association has come out strongly in favour of IFAs in its response to the Sandler review. It says anything that undermines IFAs would be detrimental to consumers and polarisation reform would be a retrograde step. It says the power of brands is diluted by IFAs.
The CA says that despite IFAs offering better quality advice than their tied counterparts, consumers are still reluctant to pay fees. It says: “The commission structure represents a viable and affordable way at least of getting advice.”
But the CA also questions whether there is a correlation between commission paid and the complexity of the advice given. It says more research needs to be carried out to ascertain the extent of commission bias.
It questions whether the low uptake of stakeholder over personal pensions is due to the higher commission structure of personal pensions. At the same time, the CA says stakeholder has led to a significant improvement in product quality.
Despite predicting an increased market for independent advice due to increased wealth, the CA focuses on the way in which access to advice can be extended outside the IFA channel. It says the majority of consumers may not need financial advice in its current guise, suggesting a new lower level of generic adviser or “para-financial planner”.
Govt must work to narrow savings gap
The ABI says it affects lower-income groups most and represents a major problem of social exclusion. It says the saving rate has to be increased by 54 per cent and this should be a high priority for the Government and regulators. It says the challenge is to spread the savings habit further and deeper.
The ABI's paper also sets out the argument for not capping commission, saying this was abandoned years ago because it was anti-competitive.
The ABI also alerts Sandler to the dangers of product regulation, including Catmarks, which it says can reduce the supply of products and the availability of advice to consumers. Spokesman Malcolm Tarling says: “Closing the savings gap is important, even imperative. We must work towards reducing this gap as the shortfall between what people save and what they need is growing.”
Good advice to encourage more saving
In its response to San-dler, Autif says good quality advice is vital to encourage a successful savings culture.
Autif says “the watch- words should be trans-parency and free mar-ket solutions” in any reform and the key principle in regulation should be transparency.
It says a recurring theme of the review, and one it disagrees with, is the view that IFAs are product distributors and not financial planners.
The IFP says this view was true in the past but there is a move away from selling products to aiding clients with their savings and investment objectives.
The IFP agrees that most consu-mers lack technical awareness of market but it says the practical solution could be more competent, qualified and ethical advisers rather then spending time and resources educating consumers.
It says there is no reason to believe that a market based mainly on direct selling would be more efficient but concedes there is a need for reform of the provision of advice on investment strategy.
First, Autif states advice must be cont-inuing and not based on the initial transaction due to the liquidity of mutual funds.
Second, it says training requirements for advisers must be rev-iewed to ensure they gain appropriate inv-estment skills.
Third, it wants dis-closure requirements to be reviewed to ens-ure consumers under-stand their relationship with their adviser and know what service to expect, that they und-erstand the price of advice and they know why a specific product is being selected even if a lower-cost alter-native exists.
Autif says it is a mistake to think that a thriving market can be based substantially on a 1 per cent charge cap.