Winners and Losers, or New Cool vs Old Skool

Winners and Losers, or: New Cool vs Old Skool

By: Gina Sargunar, Service Delivery & Research

Picture this: A client comes to an advisor with £100,000 to invest, and before he knows it, he’s invested in products he doesn’t understand, has paid fees he can’t see, for advice he doesn’t know he’s received. This wasn’t too far-fetched a few years ago. But clients, thankfully, no longer have implicit trust – not for their financial advisor, lawyer, accountant or even bank. Institutions which prided themselves on propriety have been shown to confuse, even misrepresent the facts. Being charitable, I grant this might be due to the sheer complexity of products and providers involved. And, wonderfully, we have resources and institutions which we can turn to for impartial advice, and even redress, if our money is mismanaged. Which goes to prove: clients are no longer prepared to be blinded by ‘expertise’ and jargon. We want to understand what we are getting involved with, what we are signing up for, what our liabilities are.

The RDR proposals are designed to ensure that this transparency is built into the layers of advice received: advisor firms receiving commission, profit shares or other remuneration determined by product providers and other third parties must provide this information. Wider questions arise about the way organisations along the chain of advice cost themselves and ensure their own survival. That’s fine. There are no free lunches, but we need to know what we are paying for and whether the tip is included!

The FSA are trying to clarify their thinking around this question, and a few fundamental statements have been made:

• Regulation of platforms requires that they need to be clear about whether platforms are treated as a product or as a service. This will determine how charges are incurred, and by whom
• The FSA want to ensure platform services do not undermine the RDR, especially concerning advisor charging: whether platforms receive payments for supplying administration services, or commission for distributing products.
• That platforms do not offer incentives to advisor firms which will result in consumers incurring additional costs
• That consumers have a clear description of charges. The FSA is actively encouraging advisors/providers to improve standards of disclosure
Many within financial services see the RDR as attacking their professionalism and integrity. But can’t it be seen as an opportunity, too? There is little doubt that so many of the challenges and problems faced by the industry have actually been caused by the industry itself. Why not embrace the post-RDR landscape? IFAs, product providers, clients: if everyone is clear about what they receive, and how much they pay for it, trust is created and value is built into every transaction.


Opportunities and threats exist but in the new world that is coming, no matter what, those that embrace the opportunities will succeed.

Fidelity FundsNetwork announced at the end of August 2011 that they are going to start publishing the rebate they receive from fund managers. This is trail-blazing and a very clear indication of how they plan to do business in the future. Cofunds too, are planning to announce their RDR plans ‘very soon’. (In fact, since I first wrote this blog, CoFunds have announced they are launching their unbundled charge structure in the third quarter of 2012). Where Fidelity and CoFunds lead, can others fail to follow?

Skandia’s Peter Mann, responding to a Q&A session on Twitter recently, confirms that their clients will ‘have the full story’ when they Unbundle. Standard Life and Skandia, of course, famously have legal requirements which require rebates to be secret. In a response to FundsNetwork’s announcement, Skandia did claim that the move was driven by pressure: ‘a B2C issue’, rather than a genuine desire for transparency. But isn’t it obvious? Whoever and whatever the motivator for change, clients’ best interests demand transparency

David Ferguson, CEO of Nucleus Financial Group, predicted that these announcements (By Fidelity and CoFunds) are the start of a more open and transparent way of working, and that it is a predictor for the future. He also sees a sea change in attitudes: people in the industry realise that they can no longer operate the smoke and mirrors models of the past. Given also that net wrap inflows to supermarkets in Q1 and Q2 this year have grown massively, he feels IFAs have embraced the new model, as have Fidelity and CoFunds. Others are still confused

Who can argue against transparency being a good thing except those who benefit from lack of it?