Disclosure has become a bit of a monster to say the least.Over a year into depolarisation, the idea that consumers can shop around by comparing a number of firms’ fee menus and effectively weigh up and question the cost of advice remains little more than fiction. The current rules have produced a system that is neither transparent nor clear and it cannot be described as entirely treating customers fairly. One of the barriers to consumer understanding is that the only cost expressed in monetary terms is the cost of advice expressed as commission. No provider costs are made so clear. Here, we have long held the belief that the best way to express costs is to show them as a reduction in yield, in pounds and pence. Charities show their costs in this way and consumers are familiar with and, importantly, can understand, the basic expression that for every 100 they donate, 5.25 is used for costs. Consumers are essentially interested in value for money, not who is getting paid, and this expression demonstrates value perfectly and makes comparison with alternative adviser or product offerings simple. There is an argument that this method of calculation could be used to hide commission bias. However, over the years the regulator has built enough checks and balances into adviser reporting to expose any such bias and I do not believe that today’s adviser allows commission to override what is best for their client. In addition, there is unlikely to be a commercial advantage unless product providers are willing to cut their own throat, as a reduction in yield would reflect increases in commission and have the effect of making it non-competitive. If we move away from the belief that all advisers are biased by commission and that anything paid to them must be disclosed as such, we enter quite a different area. We could, in theory, reach a situation where efficient distribution groups and adviser groups, capable of undertaking more cost-effectively some of the provider activities, such as marketing and product training for example, could do exactly this. In turn, this could allow distributors to negotiate different fee structures with providers for more cost-effective clients, which should lead to a reduction in consumer cost. This reduction in yield would make the distributors and providers become more competitive still. Tenet has been lobbying for this idea to become reality for many years. No one has had any objection to it and yet here we no further down the line. The Mifid proposals have prompted the regulator to review disclosure and state their willingness to make substantial changes if appropriate. Let us hope that simp- licity prevails. Unfortunately, in trying to empower consumers with increased information and choice, regulation has come up with an imperfect and complex set of changes that cause confusion to even those within the industry. If we want to win back consumer trust and reduce the growing cynicism about financial services while enabling commercial competition based on cost of delivery, we are going to have to try a lot harder to demonstrate both how we are paid and the value of what we do in a way that consumers can understand. We, as a group, will continue to lobby for a yield-based system for the benefit of consumer and adviser.
Simon Hudson is group chief executive for Tenet Group