JOB OF THE WEEK

We have just launched a new report about the retirement market which is causing quite a stir. Entitled "Financial Planning Through Retirement" the report looks at the issues of decumulation.

At the end of last year, I spoke to a number of member firms about how they were handling the decumulation challenge facing their clients. What shone through the responses was how difficult delivering advice in this area actually is, how complex the subject matter, how ever-shifting the political and regulatory backdrop, and how the marketing of products only adds to the noise and confusion.

It seemed to me that clarity was needed and so we set about the task of better understanding the issues. We were joined in our work by the Prudential who brought their expertise and commitment to the table and helped to fund the substantial research that was needed.

The report seeks to join together the threads of: emerging public policy thinking, regulatory structures, provider marketing, advisory practice, the demands of consumer groups, and the needs of real consumers. We interviewed over 1,000 consumers in compiling the report, interviewed firms from across the spectrum of providers and advisers, and met with consumer groups, politicians and those who help influence public policy.

The work was overseen by a high profile Editorial Board: Rt Hon John Gummer MP; Lord Lipsey; Prof. David Blake; Tom Boardman, Barry O'Dwyer and Russell Warwick (of Prudential); Allan Rosengren (Lighthouse); Mark Lund (Money Portal) and myself.

However, the report is more than just an interesting market analysis. It contains recommendations for how the decumulation market can be fostered and consumers' real needs addressed. It has now been launched with a reception attended by leading figures in politics, public policy, regulators, members and the media. The report was officially welcomed by Nigel Waterson MP, Shadow Pensions Minister.

A copy of the report can be found in the publications section of the website. Rather than do it the diservice of trying to precis the key points to a paragraph, can I instead, commend it to you as worth the time spent reading it.

We will shortly be producing some Good Practice Notes to help firms better understand the practicalities of advising in this fast growing, and increasingly important, area. One speaker at the launch suggested that, because of the changes in society and demographic forces at work, the job of an IFA will, in the coming years, be focused less on accumulation and rather more on decumulation. This does of course remind us all of the truism that it is impossible to decumulate what you haven't accumulated!

This week’s ABI biennial conference saw a range of high profile speakers address the audience including Shadow Chancellor George Osborne, FSA Chairman Lord Turner, and FSA’s Dan Waters. Speeches covered the economic crisis, the state of the markets, the future of financial regulation as well as touching on the role of IFAs.

George Osborne told the conference the Conservative Party’s economic policy is routed in 3 priorities: the immediate need to restore Britain's international credibility, the medium term priority to move to an economy built on savings and investment and the long term priority to re-focus the economy from the rush for short-term gains to the pursuit of long-term returns. Osborne claimed the current model of economic growth is fundamentally broken, and said the drivers of growth we’ve previously depended on cannot be relied upon to drive the growth of the next decade. While better regulation is clearly necessary, Osborne said this doesn’t necessarily mean an overload of new regulation and uncompetitive tax regimes which would undermine the UK’s competitive advantage. He said that what we really need is a deep culture change of long-termism.

Interestingly, when asked about the burdens of qualifications being placed on IFAs and sales people, Osborne said FSA requirements should be “appropriate to the product and its complexity”. He said there shouldn’t be cumbersome sales processes for simple savings products as they simply “create another barrier to entry” and defeat the initial purpose of simple products. It was very positive to hear him add that the Conservatives want a vibrant IFA profession and that they hope that by encouraging long-term savings, this should provide a big opportunity for the industry.

The party is set to publish a detailed set of proposals for the Tripartite Authorities in the next few weeks which I’m sure will provide some interesting reading and food for thought.

On a similar note Lord Turner used his speech to outline some of the key recommendations from his recent report on the future of regulation, saying “a revolution in approach” was needed.  He acknowledged that FSA has to reassure consumers and industry that they have a grip on the issues involved. He said FSA is therefore following up on its TCF work and continuing its focus on conduct of business as well as prudential regulation. Additionally FSA will be responding to people’s expectation it will pursue enforcement against those breaking the law.
Turner said FSA needs to ensure it is cost effective and that the “era of light touch regulation and supervision is over”.  Echoing Osborne, Turner also spoke of the need to inculcate a savings culture and stop people from relying on house price appreciation for their pensions

Perhaps the most interesting and relevant comments of the day came from Dan Waters at the FSA who gave an insight into the current direction  the RDR might be heading. Waters said one of the key drivers of the RDR has been “creating an environment in which consumers have confidence in the firms and advisers with whom they are dealing” and that a very important part of building that confidence has been raising the quality of the advice they receive. However he acknowledged that a lot of advisers might choose not to go through to the higher level of qualification which would have the effect of decreasing access to advice, ultimately compromising the initial objectives of the RDR.

He continued by saying that to allow sales people to call themselves advisers because MIFID allows it is “just a recipe for actually going nowhere in terms of trying to achieve those underlying objectives and boosting consumer confidence on the advisory process”.

AIFA obviously warmly welcomes these comments as Water’s views echo our own work which shows that consumers need to understand who can offer them professional, independent advice, and who is just focused on selling from a limited range of products.  The FSA is to be commended for such a fresh and positive approach and has shown, as it did with the recent announcement relating to fee levels for the IFA profession, that it listens to AIFA.

So all in all some positive comments and messages emerging at the conference, from both the regulator and from the likely future Chancellor.

What better way for AIFA to celebrate our ten year anniversary than with the FSA announcement to review its fee allocation and significantly reduce the cost for intermediaries.  This is an important win for AIFA and our members, and demonstrates how far we have come over the last ten years.

A defining factor of the fees campaign was the input and support that we received from members on the issue.  The sheer weight of the response, which numbered over 500, meant that your views could not be ignored.  The real triumph of the fees campaign was the ability of our members to unite with one, forceful voice when needed.  We appreciate that members are extremely busy in this challenging and difficult time but hope members appreciate the difference that can be achieved.  In the context of the fees campaign the difference has been a saving of £11.7m!

The proposed fees announced back in February were extremely unfair and it was forgivable to believe that FSA had perhaps underestimated the role that intermediary firms play in serving the UK public as well as their contribution to UK plc.  However, our success over the fees issue should reassure members that on such important matters clear, concise, evidence-backed messages to the regulator are heeded and acted upon.     This is a time of great change in regulation and for UK financial services as a whole, but after ten years of our active, campaigning style of lobbying, we do have the standing to influence change and improve the business environment for our members.

The key messages of our campaign have been taken on board by FSA and Lord Turner has reaffirmed that in the past “high impact banks were being regulated on the cheap.”  Therefore the final fees increase for banks and deposit takers will be 109.4% compared to the 94.9% rise originally proposed.  This does mean that firms requiring greater regulation will be meeting these costs not low impact advisory firms.  Further, both Lord Turner and Hector Sants have provided reassurance that after this large hike in FSA’s budget they will work to ensure that the cost of regulation does not continue to increase year on year unchecked.  AIFA will of course continue to work with FSA on its funding to make sure our members do receive a fair deal.