The Future of Distribution

27 June 2007

After all the hype, FSA’s Retail Distribution Review (RDR) Discussion Paper, published today, was bound to be both more and less than the speculation.  Factory Gate Pricing gets little more than a passing mention while the ideas on professionalism and boosting adviser qualifications go further than most people expected. Alongside two full advice variations, we have suggestions for a low-cost streamlined Primary Advice process. While very “green”, it looks more promising than the previous Basic Advice effort – generic financial advice, personal accounts and the involvement of practitioners in its conception all work in its favour.  Proposed changes to prudential regulation, including stiffer capital requirements (details in a further Discussion Paper next week) come with serious-looking intentions to lighten the load for well-managed firms.

The huge range of permutations and possibilities in this paper will take a while to absorb. And they deserve our time. We will be helping the adviser work through the issues with our new series of Thinking Ahead communications. We’re also keen to hear your views – the RDR will be the featured topic in the next instalment of our influential IFA Insights research.

My initial sense is FSA haven’t done a bad job in a tight spot. But what comes out of all this is up to the industry as much as the regulator. The industry has a long standing agenda to move towards “proper” professionalism; to get regulation reined back so we can serve more customers; and to start to rebuild public belief in the value of what we do.  While the debate on independence will be interesting, let’s not let this descend into just a row about the word ‘independent’, or about back-door attempts to ban commission. We’ve been given six months to reflect on a complicated web of ideas. Let’s roll our sleeves up and work out how we can shape FSA’s package of ideas into the future we’ve been working on anyway.

Francis McGee
Head of Corporate Affairs

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Revealing a little more

15 June 2007

If the current pension reforms were the dance of the seven veils, we’d now be down to three or four. The DWP has published its latest on Personal Accounts - confirming some intentions, firming up on other details and throwing in the odd surprise.

Launching in 2012, personal accounts will be trust-based occupational schemes, governed by the Pensions Regulator – a new challenge for them! The Government stresses that personal accounts aim to complement, not compete with, existing good-quality pension provision. This is supported by a reasonable contribution cap of £3,600, a confirmed ban on transfers (at least until 2017) and a commitment to work with the industry to find a way for employers offering group personal pensions to be exempt from offering personal accounts.

The 8% default contribution will be phased in for both employers and employees, starting at only 1% each, gross. Employers who encourage opting out face fines. Controversially, auto-enrolment applies right up to State Pension age, and those close to that age will have to decide for themselves if this is worthwhile – possibly with the help of a generic financial adviser?

The Delivery Authority, not the Government, will decide on both the structure and level of charges. These must cover all costs as tax subsidies are ruled out. As life offices know, a “simple” fund charge creates huge financial strains in the early years – to avoid huge borrowing, might the Delivery Authority opt for a combination of contribution and fund charges?

The next veil will be teased away in a further Pensions Bill in the next Parliamentary session. This will reveal the precise responsibilities of the Delivery Authority and Board. Their decisions could have a huge impact, not only on personal accounts, but on the wider market. So it’s vital the industry works with them. When all is revealed, we want to see more people saving more for retirement.

Steven Cameron 

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Gold-plating is off the Menu

7 June 2007

Last week, Europe showed it had a bite to go with its bark. No, not the reruns of Eurovision, but the decision by the FSA to withdraw its request to retain prescriptive rules for the Menu and the Initial Disclosure Document. Keeping the current level of prescription would have meant gold-plating MiFID rules and Commissioner McCreevy has made it clear this is not to his liking.

Is this something to celebrate? I believe the original concept that led to these documents was good. The Menu aimed to clarify the options for paying for advice and to help customers benchmark what their adviser was charging against the industry average. The Initial Disclosure Document aimed to make the adviser’s status and scope of advice clear. Surely, these aims are every bit as important today as they were two years ago. But as the Menu moved from concept into practical reality, it grew. The Menu we have today is comprehensive, but complex. So few surprises, then, that FSA research shows it isn’t working for consumers.

Where does this leave us? The FSA needs to remove its prescriptive rules by 1 November 2007. But the underlying principles of status and advice charge disclosure will remain. Until we have something new to work with, the FSA will retain the Menu and IDD formats in guidance. So principles based regulation, but with detailed guidance.

Come November, advisers shouldn’t rush to dump their Menus. While they may not be perfect, I don’t see them as having damaged the market. Improving transparency and rebuilding consumer trust is already high on the Retail Distribution Review’s agenda. Let’s work together to come up with a form of disclosure which can deliver the FSA’s original objectives in a way customers can understand.

Steven Cameron

Important note

This blog provides the views of our industry lobbying team. The views are the opinion of the person writing the entry of the blog and don't necessarily represent the views of AEGON in the UK. They are based on their interpretation of industry developments and their current understanding of UK proposed and actual legislation, and should not be interpreted as recommendations or advice.