The regulated finance market is going through an intense period of self-analysis – the most specific scrutiny of itself since depolarisation.
The Retail Distribution Review (RDR) and Otto Thoresen’s generic advice review have the potential to turn the adviser market upside down, if we are to believe many commentators. In response, the Association of IFAs (AIFA) has written its own manifesto, to protect the interests of its members as well as their clients.
Presenting the manifesto at a reception held at the House of Commons, Chris Cummings, director general of AIFA, pulled no punches. He said the RDR raises important questions but did not present a “coherent vision of the future”. Indeed, many of those who worked on the AIFA manifesto believed more fundamental work was needed.
Commenting on the size of the challenge going forward, Cummings says: “UK financial services are currently going through considerable turmoil. The impact on advisory firms trying to meet these challenges is immense and they have to focus on the real issue in meeting clients’ needs if they are to have long-term profitable futures.”
The manifesto has been received with open arms by some.
Joseph Cohen, principal and adviser for fifteen years at AC Financial Advice, understands exactly where Cummings is coming from, having witnessed depolarisation, MCOB and ICOB. He says: “Consumers are often confused by the options available in financial services. In these times, when people are becoming aware of their debts and a possible recession, they need reassurance and advice, but often have not known where to go – or even worse, not trusted advisers.” He adds that mortgage advisers sell upwards of 60% of all mortgages in the market, but recent exposés of the market – new-build sales, payment protection insurance and sub-prime – have not shown the industry in a good light.
So, if over 60% of mortgages are sold by financial advisers anyway, and with regulation over three years old alongside a fully enforceable treating customers fairly regime, what is the point of the manifesto?
Catalyst for change
There are two possible reasons why the intermediary community needs a manifesto. In a corresponding piece of research conducted by NMG Financial Services Consulting on behalf of AIFA – Financial advice, worth the money? – it was found people are most apathetic when it comes to dealing with debt. The research found that if the combined debt reduction of approximately 10% achieved within one group in consultation with an IFA were replicated by the UK’s 24 million households, it would result in a national personal debt reduction of £30bn. That is a whopping figure and a huge challenge for the adviser community.
Furthermore, the research said a number of consumers have protection cover on loans which is “not good value”, while the typical household in the UK has a shortfall in their protection cover of around £52,000 in the event of unforeseen unemployment or critical illness. “These households are clearly exposed to the risk of financial hardship,” it concludes.
So, there is still a huge market to capture. As Tom Baigrie, managing director of Baigrie Davies and Lifesearch, says, there remains a significant challenge to understand why some UK consumers are still unable to connect with the financial services industry.
The second reason the industry needs yet another set of guiding principles is because there is still confusion between what constitutes advice and what is merely a sale of a product. Cummings says: “We must clearly separate advice from sales. For too long, the professional advice community has been tarred with the same brush as salespeople. A non-advised message has been promoted at the expense of advice.”
This ties in nicely with the recent uproar from the insurance and protection communities on online sales. The British Insurers Brokers’ Association expressed concern last month that some consumers mistakenly believed they were receiving regulated advice when buying online from price comparison sites. If the manifesto can go some way in establishing a clear line between sales and advice – a line that still seems to be blurred despite regulation – it would certainly be welcomed in some quarters.
Andrea Rozario, director general of Safe Home Income Plans, sums up the prevailing mood. She says: “Advice does not exist in a vacuum. We all need to engage in this debate on the future of financial services.” While some advisers have baulked at the idea of yet another proposition on what constitutes a fair environment for consumers and advisers, others have seen it as an opportunity for advisers to finally take control of their own destinies. n