Are independent and restricted labels out of date?

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Over recent years, there has been much sound and fury over whether independence is best and restricted the devil’s choice of advice proposition. Some two years on from RDR, I thought it might be worth reflecting on what has happened and the reality of what advice firms need to do in the future to meet clients’ needs.

Firstly, I should make clear that these are very much my personal, evolving thoughts. Sense is and will remain a champion of independent advice. Nevertheless it is vital that we have a reasoned and considered debate on the future of our profession and, if nothing else, I do hope that my thoughts stimulate some real discussion.

My original objection to restricted advice was based on nothing more than the reality that those adopting the model were doing so for their own interests rather than their clients.

Duh! Why wasn’t this happening a year ago?

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The FCA consumer panel intend to investigate advice services where the firm provides both advice and products. They are concerned that the costs of such a service are not transparent and that consumers are paying too much.

There are numerous crude sayings which spring to mind but the most polite is probably “duh!”. In this blog, we have consistently pointed out that vertical integration in financial services has failed to deliver cost savings for end consumers.

Is SJP playing fair?

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When the defunct FSA proposed details of the adviser charging regime, there were rightly howls of horror from IFAs about the potential for vertically integrated firms to offer advice at an artificially low price.

Fortunately the FSA were clear that their rules required distribution arms of vertically integrated firms to make a profit. One of the consequences of this approach was the demise of the provider backed bancassurance sales teams who simply could not deliver advice at a sensible economic cost. Axa calculated that their advice charge for single premiums would need to be over 6% in order to break even.

But the biggest, and some might argue ugliest, sales force of all seems to have cracked that particular problem.

Don’t tar all networks with the Sesame brush

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I read with interest an article by Alistair Cunningham in last month’s Money Marketing, representative of a smattering of similar articles in the pages of our trade press recently.

“Networks and nationals are struggling, with no apparent end to the suffering. Record fines, management team departures, falling adviser numbers and a furious backlash against the inevitable conversion to a restricted advice model summarises a horrendous 2013”

I sat there wondering whether I’ve got a tad confused.

Will FCA Inducements Guidance halt the move to restricted?

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For the last 2 years, I have consistently warned that the anti-independence propaganda being spewed out by the big networks and nationals was driven by their addiction to provider money.

Last week’s Inducements guidance will make it far more difficult (even impossible?) for providers to pay for restricted or tied deals. The new guidance is significantly tighter than the original consultation: presumably because the FCA has finally become aware of the “dodgy deals” that were done in the run up to RDR.

The Restricted List

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Large, long-in-the-tooth networks and nationals really have my sympathy. It’s a tough old world out there for a number of the traditional big boys and there has been plenty of soul-searching going on, sparked by that nasty combination of losses, legacy issues and RDR.

Questions and commentary over Sesame’s abandonment of independence have taken up a good few column inches of late: Is it parental pressure to de-risk the business? Is it an attempt to bridge losses by taking a slice of the margin on the products? Is it just a bridge too far to put in adequate systems and controls to allow advisers to remain IFA? Whatever the truth is, I’m sure that senior management have their motives and I’m sure all will become abundantly clear in due course.

Whilst I can’t tell you Sesame’s real reasons for removing the ‘i’ word, I can tell you with some confidence that (a) the advisers didn’t vote for it and (b) it isn’t down to consumer demand. Strange world eh?

Debate: Do networks need to vertically integrate post-RDR?

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Steve Young recently contributed to a debate on whether or not networks needed to be vertically integrated post-RDR. He was debating with Sanlam UK’s Giles Cross, who believed it was necessary.

Each side had to write twice on the matter – firstly an opening statement, and then upon seeing the other side’s argument, a rebuttal. Below is the contribution from both sides, kindly reproduced with permission from FT Adviser.

Arguing for the motion: Giles Cross, Sanlam UK

RDR demands that a company clearly defines its proposition; what it does and what it doesn’t do. This immediately leads to restriction.

The Future of Networks

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The proportion of advisers in networks has stayed steady for the last few years in stark contrast to the previous 10 years when numbers declined sharply in favour of direct regulation.

So what role will networks play in the future and what are the drivers of success?

Over the next 3 years, there are two significant trends which will contribute towards an increase in the number of firms being part of networks.

Lock and load – how the big distributors exploit their customers

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John Wayne immortalised the phrase “lock and load” in his 1949 classic film, The Sands of Iwo Jima. It has come to symbolise a kind of bravado associated with firearms and the military.

In today’s financial marketplace, the term can be used to describe a very different business strategy. The holy grail for any financial product manufacturer is to control a distribution channel where the level of price sensitivity is low and to lay off any regulatory liability from poor advice.

The independent channel has proved to be highly resistant to any control and competition has ensured that, as far as is possible in a market with low price visibility, product margins have remained stubbornly low.

Diversity on the High Street

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Just watched a fascinating article on the Totnes pound and how local traders in that small town are seeking to promote the benefits of local independent traders.

Many town and city centres are dominated by national and international brands and it can be very difficult to find any choice as these shops are full of homogenised products often sourced or manufactured in China or the Far East.

In my experience, small independent shops often deliver real choice and they pour passion and care into their products which the big retailers can never match.

And the same principle applies to small IFA firms.