Retail Distribution Review
Written evidence submitted by Chris Pinkney, Tercos Financial Ltd
IFA with 25 years in Financial Services.
Qualifications: CF1, CF3, CF4, CF5, CF6, FPC 1,2 & 3, ER1 G60, R01
I will achieve level 4 qualification in 2011 needing only 5 more credits (1 exam). I am already offering Fee Based advice services alongside commission based.
Submission:
A transparent and fairer charging system.
1 As IFA’s we already tell clients the level of commission we earn from the sale of products, this is given verbally and in writing at point of sale and confirmed subsequently in the suitability report.
2 We offer a fee based option; this is taken up in the main by high net worth clients with larger sums to invest and tax savings to be made from the investment and advice. No matter how it is explained people with lower amounts to invest, 90% of the population are reluctant to part with a cheque for the investment and a cheque for the advice.
3 Cutting out the option of commission does not automatically make the cost of advice more transparent or fairer, it does not stop those advisers willing to overcharge higher net worth clients who probably will not shop around nor does it treat those customers fairly who are happy that the adviser remuneration comes from the product provider, even when they are shown the effect on the investment.
4 As Independent Financial Advisers we are the agents of the client not the provider, we do not receive commission so much as brokerage for recommending the best policy from the whole of the market. Clients understand Independence from the provider, being able to pick the optimum product from all on the market.
A better qualification framework for advisers.
5 As you can see I have taken a number of exams over the years and also am regularly tested by way of on line tests to ensure my knowledge is current. Whilst I am not opposed to increased education and standards in the industry and I will achieve the level required, I do not agree that those of us with decades of experience and unblemished records should be rendered unable to practice simply because we are unable or unwilling to take and pass exams in a given timescale.
6 The FSA took long enough to publish the level of qualifications required and this left little time for the examining bodies to put into place the required courses and exams. Indeed over the last couple of decades of regulation there has been little coordination or direction to education and exams for the industry, so to rush things through now and lose valuable experience from the industry at a time when people need more financial advice than ever is short sighted and must fall far short of Treating Customers Fairly which is an FSA mantra, perhaps one of the better things they have introduced but hard to police.
7 Long term advisers who have met the previous education requirements should still be allowed to service clients otherwise their experience will be lost to the industry, what is better a graduate who passed all his exams and achieves diploma level but who has never had a mortgage, pension, investment, critical illness policy, life or income protection policy in his life, but is advising from the rule book?
Greater clarity around the type of advice being offered
8 We’ve had polarisation, depolarisation and now decimation of the Independent Advice Sector. Clients understand Independence to mean independent from any product provider, their agent not a salesman of the provider. IFA should mean just that, no matter how we are remunerated we should be able to choose from all the products and providers available to meet our clients’ needs.
9 Not being Independent because we take our "fee" from the provider should not mean we cannot be seen as Independent Financial Advisers. Over the years I have reviewed a large number of peoples circumstances and when I queried certain products was told, "we were called into the bank to review our accounts and because we had x thousands we were advised to move some to this new account". It was clear that the "new account" was an investment bond sold by the banks tied adviser to meet his or her targets. How does adding layers of advice and adviser type avoid this sort of thing in the future? Reducing the number if Independent Advisers will only increase the type of sales hype used by banks to lure clients into inappropriate investments simply so banks can meet their targets.
Summary
Whilst greater education and professionalism is desirable the way it is being implemented will result in more confusion greater cost and ultimately greater cost to the country as people start to invest less and less as they cannot find quality advice at a cost they are prepared to pay.
Independence should mean Independent of product provider, there are other ways of cutting commission bias, make all single premium lump sum investments a maximum of 3%, work out a sensible way of remuneration from regular premium contracts which rewards longer term commitment to encourage advisers and client to realise the long term benefits of regular savings.
Don’t let the proposed changes filter down to life, critical illness and income protection sales as the country will suffer financially as less people take responsibility for financial risk of illness and death.
Everyone has to insure their car, if you have a mortgage you have to insure your home, no one is compelled to insure their income and provide for their family, it is when they talk to financial advisers the risks are pointed out and options and costs are given, Independent Financial Advisers go a step further and offer the best product from the whole of the market. If IFA’s are forced out of the market because of these proposed changes to investment remuneration there could be fewer left to provide Independent advice in life and income protection and help families with their overall life planning and budgeting.
As I intend to remain an IFA I could actually benefit from less competition and therefore you might wonder why I’m concerned. Partly because of what I have outlined above and partly because of what we see every day as a complete lack of understanding by the FSA of everyday clients needs.
I have a 28 year old client with two children who was off work last year with Meningitis, complications mean he’s off again and will be for several months, he may never work again. Because I sold him an Income Protection Insurance he can pay his mortgage, his bills and put food on the table. This is not a short term policy which would have been sold to him by his lender, but a long term permanent policy only sold via IFA’s. It is low cost high benefit. I believe these Holloway style policies have been exempted by the RDR remuneration rules but will still only be sold by IFA’s of which there will be fewer around to sell this type of protection.
This is not a high net worth client who would have paid a fee to have his options reviewed; this is a hard working average guy putting a roof over his head who happened to be referred to an IFA for his mortgage, an IFA who sought the best value for money "proper" policy to meet his need and budget.
No tied agent or bankassurer would have been able to offer such a plan, they would have sold more expensive, less effective short term cover and earned more commission or sold nothing at all as any comparable product via a bank would have been several times the premium given the clients occupation.
This is the side the FSA don’t see, being able to chose from the whole of the market as an IFA I provided the right policy to put the right money in the right hands when it was needed and I was paid by the provider for doing so, the client paying me via the premium. If experienced, caring IFA’s are forced out of the market as they can’t or don’t want to comply with the Investment Market rules, the knock on effect will be that people like the client above will quickly become a burden on the State, not the desired effect of the RDR as it stands but long term just wait and see.
Being able to go to a multi tied or bankassurer and not be charged a fee would not have helped this client.
January 2011
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