We spent some time yesterday with a Financial Planner from another local firm of Chartered Financial Planners, sharing best practice and discussing the current issues in the retail financial services sector.
The conversation got me thinking about a few of our biggest concerns in the sector currently.
These three issues could all have indirect implications for our clients, which is why we are giving them our attention as 2012 draws to a close and we enter a brave new world of financial services in 2013.
Commission ban should result in lower charges
The first concern is related to the Retail Distribution Review, which comes into force on 31st December, and relates to the way in which some product providers appears to be applying the requirements set out by the Financial Services Authority.
We are wholly supportive of the Retail Distribution Review (RDR) and have been one of its most vocal supporters since it was first proposed.
The RDR should result in better qualified advisers, with more transparent remuneration practices and a clearer standard of independent financial advice. For these reasons, it is a positive move.
What does concern us is that some product providers will interpret the FSA rules on commission to suit their own commercial objectives, disadvantaging clients in the process.
One example we looked at yesterday came from Abbey Life who have written to IFAs explaining that, with effect from 21st December, any instruction they receive will be treated as an ‘advised transaction’ and will result in the cancellation of future commission payments.
There is no indication that Abbey Life will consequently reduce product charges. They will no longer be paying commission to IFAs, but customers will continue paying the same product charges as before, charges that previously paid in part for this commission.
We believe this is unfair to our clients and to all customers of Abbey Life. Where any product provider stops paying commission, as a result of their interpretation of FSA rules, we expect to see a corresponding reduction in product charges.
SIPP providers allowing ultra-risky investments
For the right investors, using a Self Invested Personal Pension (SIPP) can make real sense.
They offer access to a wider range of investments than a traditional personal pension and can represent a lower cost option for larger pension funds, with charges typically expressed as a monetary amount rather than a percentage of funds.
What we are concerned about is the ability for less than scrupulous (or sometimes incompetent) advisers to use a SIPP as a method for recommending esoteric, high risk, unregulated investment schemes.
A thematic review carried out by the FSA and published this week has found widespread failings among SIPP providers, concluding that several may have been a ‘conduit for financial crime’.
They also found that 70% held ‘non standard’ investments, including unregulated collective investment schemes (UCIS) where there has been a ‘significant increase’ in the volume being recommended.
When UCIS go bust, investors have no recourse to the Financial Services Compensation Scheme (FSCS), unless they received unsuitable advice and the financial adviser who made the recommendation has subsequently gone bust.
There is a real risk that some advisers are recommending UCIS within SIPPs, raking in substantial levels of commissions (being paid once from the SIPP wrapper and once by the UCIS provider) and then dumping their liabilities on the FSCS when they exit their businesses. Where this happens, all customers of retail financial services companies ultimately pay the price through higher charges to fund the FSCS.
We hope to see SIPP providers taking a more proactive stance to stop themselves being used as the conduit for this sort of behaviour.
Taxation without representation
Our final big financial services concern relates to the funding of the Money Advice Service.
This is being widely advertised as ‘set up by government’, but of course its £46.3m annual budget (which includes £19m this year being spent on vanity advertising) is paid for by the retail financial services sector and its clients.
This week we have seen Tory peer Lord Naseby table a written question in the House of Lords, asking whether the Treasury believes the Money Advice Service should be scrapped. We look forward to reading their response next week.
Leaving aside the Money Advice Service, we are concerned about the ability for the Financial Services Authority (FSA) and its successor the Financial Conduct Authority (FCA) to raise levies against financial advisers with little notice and no real ability to budget for this cost increases.
Hopefully these three topical concerns can be tackled swiftly for the benefit of all customers of financial services companies, including those of Informed Choice.
We will certainly be focusing our attention on these issues, with the aim of ensuring that our clients get a fair deal.
Photo credit: Flickr/hailiesdad
