In 2001, the FSA as it was then called launched its 'Treating Customers Fairly' initiative in a bid to help restore consumer confidence in a financial services industry that had somewhere along the way lost its shine. Or its reputation had, anyway.
A few years later, in its 2006 paper ‘Treating Customers Fairly – Building on Progress’ the FSA published a set of six ‘outcomes’ to help adviser firms understand what that principle meant in practice.
These were:
- Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture
- Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly
- Consumers are provided with clear information and kept appropriately informed before, during and after the point of sale
- Where consumers receive advice, the advice is suitable and takes account of their circumstances
- Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect
- Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.
A wise man recently pointed out that nowhere in these principles is there any mention of price (thank you Peter Smith at TISA).
And yet the RDR – a probably-too-close sibling to TCF – has unfolded to create a sector where price is king – particularly in the platform sector. A sector whose apparent raison d'être was to more efficiently administer the buying and selling of funds, wrapped or unwrapped within certain tax wrappers, to make it easier and more cost-effective to encourage long-term saving and investing for the future. Or something equally simplistic.
Price-obsessed
Instead, what has emerged is a sector so price-obsessed, where margins are being squashed on a daily basis to no effect except to question where on earth that margin was going previously (or have all these businesses altruistically relinquished revenue?). So many firms are now offering 'added value' – but not through incentives – and with an almost-vehement defence of a focus on performance in order to quash accusations of being greedy.
Heaven forbid, should anyone stop to think about reliable quality of service.
In a world that is increasingly grey – not dull, but grey in that business models are merging, evolving – platforms are now offering rating services and increasingly intermediary 'strategic' partners, etc. The number of fund buyers in their traditional sense of the word will decrease.
Let’s not forget: Hargreaves Lansdown, Chelsea Financial Services, Bestinvest and others like them are DISCOUNT brokers. Cost will lie at the heart of their model, however you dress it up. That is not a bad, or hidden thing and if people failed to understand that they probably shouldn’t be buying through them.
There are, of course, financial advisers and discretionary investment managers at all those organisations and it is already becoming commonplace for partnerships to emerge (such as Chelsea's with Albermarle Street Partners and Bestinvest's with Tilney) to apply a 'quality' stamp to a previously viewed cost-centric outfit.
Don't get me wrong. Many funds were probably charging too much for mediocre performance for far too long and getting away with it. They probably should have been questioned then about how the charges were arrived at rather than all of us credibly having a pop retrospectively.
The idea of a 'clean' share class is a good one (though I preferred factory gate price, personally). The assumption that it’s always in the best interests of all clients to transfer into these share classes is not.
Operational opportunity?
Many a sales director warned over the proliferation of too many share classes as being one of the worst unintended consequences of the RDR and I think with even basic platform-to-platform in specie transfer between assets in the same share classes still not as widespread as it should be, with all these new, post-RDR ones there is a huge job to be done and I am sure talented operations specialists will be in hot demand over the coming months.
Old Mutual Wealth's Paul Feeney said recently that "No one wakes up in the morning and thinks. Oh, today I really want to buy into UK small caps or a strategic bond fund. They wake up and worry whether they're going to have enough to live comfortably in retirement and look after their families in the way they'd intended."
As much as 'back to basics' is often vastly overused, I do fear by over-caveating to avoid being ripped off we've gone against the whole intention of encouraging more assets into saving for the future. Or certainly making people swot up a helluva lot in order to do so.
