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Will Cats make their mark on advice?

It appears that Catmarked advice is back on the agenda.

Since it was first floated by the Treasury in a paper primarily dedicated to the extension of Catmarks, not much has been said about creating a similar standard for advice.

Now some query how such a standard would work. The Government has always insisted its Cats are not a badge of approval but gives an indication that the product or, in this case service, are relatively safe.

Advice is not a product where black and white standards can be attached. It is a subjective process, based on face-to-face contact between adviser and client.

LIA director of public affairs John Ellis says: “I am baffled as to what the criteria would be for a Catmark. I suppose you could impose limits on costs but other than that I do not see how a Cat can apply to advice.”

Traditionally, Cat has stood for charges, access and terms. Those critical of any plans to extend such a standard to advice make the point that, beyond creating a cap on charges, there does not appear to be much more the Government can do in this context.

The FSA&#39s depolarisation paper CP121 has proposed a strict system by which IFAs can be remunerated – the defined-payment system. It is a bitter pill to swallow that as well as saying IFAs must only charge fees or offset commission, the powers that be would also say you can only charge a certain amount if you want the stamp of approval.

Most say the major barrier to access is cost, so presumably a cap on charges would deal with that issue. Another barrier is clearly lack of education but how creating standards for advisers would approach that is not clear.

Terms would be sorted by simply enhanced disclosure, which the FSA says it is dealing with – but the industry has yet to see any details. If a Cat for advice is to be similar to existing standards, there does not seem to be a lot this bring to the table.

Some say the Treasury must have more on their minds than simply a disguised cap on charges. Aifa director general Paul Smee says: “I think the Treasury has something more radical up their sleeves than a Cat which would appear to deal exclusively with charges.”

When looking at the other areas where Cats exist, mortgages and Isas, neither can be said to be a huge success.

Cat Isas were reasonably popular in their first year in existence but mainly with banks, building societies and the fund management arms of life offices. Most of the fund management houses have not bothered with them because of a recognition they cannot offer a quality fund under a 1 per cent cap except for tracker funds. Some argue it has given some tracker funds an excuse to charge more than they should.

It cannot be said that Cat mortgages have been popular. Few lenders offer them mainly because it is difficult to meet the standards and still offer a competitive product.

Charcol senior technical manager Ray Boulger says:”I think there is no question they have been a failure. The only lender that has really embraced them has been Nationwide. Three other lenders did introduce them but have since discontinued the line because they are not competitive.”

The one product where a Government-backed mark has had a major impact is stakeholder but that is a kitemark not a catmark. This has proved to have more teeth in terms of changing the market. But the stakeholder kitemark was backed by a regulatory intervention including putting a “why not stakeholder” clause into reasons-why letters and a requirement for most employers to give access to stakeholder if they did not have an alternative scheme.

There is speculation that a Catmarked proposal from the Treasury would be similar to the second-tier adviser envisioned in CP121. It could end up meaning a Catmarked or entry-level adviser would only advise upon Catmarked or entry-level products.

If that is the case, then why are both the Government and the regulator considering it? Is it another example of each trying to prove to the other that they can come up with a workable solution to the problem of extending access to advice first?

Aifa director general Paul Smee says: “Just because the FSA says it is looking at access and terms does not mean the Treasury cannot as well.”

All this leads one to think that surely when the Treasury is talking about Cats in an advice context it must be talking about more than what the standard has come to represent to date.

There is talk that Sandler will deal with this area in his review although the Treasury has said he will not get bogged down in micro areas such as Cats but will focus more on the bigger picture.

There is also the suggestion that the Treasury will use Sandler as an excuse to publish its own paper on basic products. If this is the case, it is likely that more details about a Cat for advice would appear there.

It is fair to assume that the Government has ambitious plans but those plans for the provision of financial advice remain a closely guarded secret.


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