Despite receiving a broad welcome, questions remain over how the clampdown will be enforced
One of the greatest criticisms of the government’s proposed ban on cold-calling was it did not include so-called “introducers” – firms that often rang new clients out of the blue to drum up business for advisers – which played a prominent role in the British Steel Pensions Scheme saga.
MPs went so far as to say “unregulated and parasitical introducers” generated leads to support “dubious advisers” to “exploit BSPS members for personal gain” in their report on British Steel.
It should therefore reassure the critics of the cold-call ban legislation that the government has included introducers in revised proposals announced in last week’s Budget.
The move means that IFAs will now be affected if they use any company that finds new clients through cold-calling – even if they provide these clients with high-quality advice afterwards – and they will be banned from working with such firms.
An impact assessment of the proposed legislation says the small proportion of IFAs who use lead-generation firms will need to stop accessing their services once the ban comes into force. While advisers may welcome the extension of the ban to introducers, many have expressed concerns about when it will be implemented, how it will be enforced and why overseas calls are not included.
How big an impact the reforms will have depends on how many advice companies still generate business through either cold-calling or working with firms that do. So how widespread is the practice today?
Head to head: Should advisers be allowed to get leads from cold-callers?
Pimfa deputy chief executive
Throughout this process, we have been very clear that while it is important for the government to act in this area, it cannot be done at the expense of legitimate business activity.
We are pleased that the government has taken these concerns on board and provided clear guidance which, having consulted widely with our membership, we are confident will not represent a detrimental impact on their businesses.
We recognise that this ban will impact some smaller firms and in particular, new businesses which are looking to grow their client list.
On the other hand, this needs to be balanced out against the harm caused to thousands of people who have been targeted by the illegitimate business practices of scammers, and action must be taken to stop this.
We would urge the government to review this ban on a regular basis going forward. The impact on business development should also be monitored.
We are confident that this ban will be effective for now, but there are other avenues which will almost certainly be abused by scammers in future which the government should be alive to.
Personal Finance Society chief executive
Most legislative reform of this type will carry some degree of unintended
consequences for good firms and consumers, but we are largely united in the need to address scams and nuisance cold-canvassing from a public interest and sector reputational impact perspective.
The use of lead generation has been reducing across the advice sector over the past few years through progressive evolution away from transactional sales and therefore the impact is unlikely to be a significant issue for most.
Transactional consumer needs should not be ignored, however, and some firms have continued to provide a vital service in this respect. But the increasing number of unsolicited nuisance cold-calls, texts and emails, and the scourge of scams outweighs the benefits.
It is imperative that consumers know no legitimate firm will cold-call them about their pension for the purposes of selling a product unless they have given express consent or have an existing relationship with the caller. Yet it will remain difficult for some to identify the difference between non-marketing and marketing cold-calls, so greater clarity and scope will be needed over exemptions and “legitimate marketing calls” by regulated firms.
Looking deeper into leads
The Yardstick Agency director Phil Bray says only a minority of advice firms use lead-generators and he estimates it is less than 10 per cent. This is based on responses advice firms give to The Yardstick Agency when they are asked about their marketing strategies. Only a handful say they use lead-generation firms as part of a broader marketing package.
Bray adds widening the ban to include introducers will not have a huge effect on the inquiry levels most adviser firms receive, as they use alternative sources of finding clients.
He also argues adviser firms who have used cold-calling legitimately and are caught out by the ban will be acceptable collateral damage, as unsolicited communications are regularly used for pension scams.
While the cold-calling ban will not solve the problem immediately, Bray says being able to tell the public cold-calls are illegal is a huge symbol and a big step in the right direction.
But even if only a minority acquires leads through cold-calls, will the legislation actually be enforceable?
For a number of advisers, the swift implementation of the cold-call ban is more important than how it is policed, or the jurisdictional reach. A lobby for a cold-calling ban first started in 2016 and was strongly backed by the advice community. But the government has repeatedly delayed putting the legislation on to the statute books as other matters such as Brexit have absorbed its energy.
The government intends to lay the updated draft regulations before parliament in the autumn and expects the ban to come into force in early 2019, but is this realistic? Cervello Financial Planning director Chris Daems says the quicker the legislation is introduced, the better, as the amount of money being lost through pension scams is high and will remain so as long as there is no ban.
Citizens Advice figures from 2013 claim 97 per cent of pension fraud cases stemmed from cold-calling and figures produced by the FCA over the summer said each victim of pension fraud lost £91,000 on average in 2017.
The last thing the profession needs, Daems argues, is more negative press as many consumers do not differentiate between good and poor advice.
He adds that the swift introduction of legislation will empower advisers and regulators to educate the public better, as they will be able to convey the strong message that it is illegal for people to receive cold-calls.
Director, Mowatt Financial Planning
The ban is good from a consistency point of view because it should apply to both non-introducers and introducers. Having never used introducers, I think the impact of this will be specific to firms which use them.
The wider the scope of the ban, the better, so the fact it does not include calls from abroad is negative. If a cold-call comes into the regulated advice environment, it is less likely there will be consumer detriment as the current procedures will prevent harm. If the cold-call goes outside the regulated advice environment, that is where the greatest detriment will occur and is the issue which needs to be addressed.
Generally, pension scams will not arise from regulated advice but through unregulated advisers and obscure investments. The sooner the ban is brought in, the better really.
While the scope and introduction of the ban are important, what can advisers do to promote their firms better so they do not have to rely on introducers and their cold-call tactics, and fall foul of the ban? Daems has some ideas and believes firms have to market themselves in a way that reflects the ethos of their brand.
He says: “Our approach as a business has been on building long-term relationships with clients or other professionals who want to work with us on behalf of their clients.
“If there is an advice service which has only generated business with a cold-calling route, then they need to look at their marketing plan as it is not robust.
“As a business owner, you need to consider how changing legislation might shape your commercial model and if you have only used lead-generators as a source of business, your planning has not been good enough.”
Red Circle Financial Planning director Darren Cooke, who was one of the advisers instrumental in setting up a petition for a cold-calling ban, says that he still gets requests from lead-generators asking if he needs to use their services.
But Cooke turns them down as he has never needed to use cold-calling. He says that he has been able to find business through other means. He argues advice firms can spend their marketing budget on better ways of generating new business such as having an appealing website, encouraging existing clients to refer others to them and networking at events.
Cooke gives an example where a contact at a networking group he attended two years ago recommended him to an individual as an adviser who could help him.
This person then called Cooke, who now has a potential client because of this networking.
With cold-callers in the government’s sights, a sensible course of action for advice firms seems to be to steer clear of introducers to generate business.
Although only a small percentage of advice firms may be affected by the ban, many see it as a fair price to pay compared to the amount of money being lost through cold-call scams.