Rocking The Status Quo
“The challenges of financial services retailing are likely to be boring for people whose eyes light up at the valuation of an exotic derivative or a large corporate acquisition” – so said Professor John Kay a couple of years ago in the “Financial Times”.
A cursory glance around blogging websites favoured by financial advisers indicates that little has changed since that statement was made. In yesterday`s FE Trustnet article, for example, Mark Dampier of Hargreaves Lansdown chose to lay into the Government`s Consultation Paper, which sought ways to guarantee the value of contributions into NEST (the auto-enrolment pension scheme due to be introduced later this year). Steve Webb, the pensions minister responsible for floating this idea, cited research demonstrating that consumers have a “huge appetite” for this sort of thing, to which Mr Dampier`s response was that the whole notion was “complete nonsense”.
Complete nonsense it may well be, but what was Mr Dampier`s alternative strategy? – broadly to improve consumers` education by introducing an “O” level in financial planning, so they could appreciate the concept that, “….for the first few years of paying into a pension, you want the investment to be poor so you can buy more and then make better returns in the future.”
Now this may be entirely logical for the financial cognoscenti, but try selling it to the (90% plus) mass market investors in this country. If a guarantee costs 0.5% per annum or less, it might just represent a price worth paying to forestall an exodus if small savers get the impression their money is heading south after a few years. Certainly, culture and education have to change, but is it really being suggested that we put budget deficits on hold for a decade or two while we re-shape mindsets? Savings gap mitigation has to begin as a matter of urgency in the U.K., irrespective of the knowledge deficiencies that exist. Accordingly, we must deal with the material available and adapt the message along the way as educational improvements are made.
Of course, it is much easier to make exhortations and to criticise – that way it might be possible to kick the can further down the road whilst holding on to a system that delivers profits to the industry which involve taking, “three bananas for every eight that pass through the system” (Forbes Magazine). Most of the market segment that financial advisers are battling so hard to hold on to will not be in a position to hand over fees for financial advice next year anyway.
Amid yesterday`s internecine strife, I found it difficult to suppress a smile when I read a comment posted by one lone (consumer) voice: “A difficulty for many remains the fact that their funds are ‘taxed’ by the financial adviser, irrespective of performance. Perhaps the industry should move to a percentage on performance profit, not on capital. See how many IFAs are left in a year after that.”
So while the likes of Hargreaves Lansdown, Vantage and Fidelity are deliberating how best to dress up “enhanced disclosure” and charge an up-front fee to the two and a half million investors with platform accounts totalling £85 billion (source: Barclays Wealth), it might also be worth reflecting on the Association of British Insurers` survey which found that 50% of consumers won`t pay fees for financial advice, with about 30% only prepared to pay £300.
Come the Retail Distribution Review, something is going to have to change – and it`s unlikely to be the consumer.