Whilst we are still awaiting the publication of the FSA Consultation Paper for how the implications of RDR (now RDIP) will be implemented, we touched on the subject of fees last week and so we thought it was worth looking at the ‘Guided Sales’ opportunity. Guided Sales is being debated and tested by a number of financial services industry companies – including providers, distributors and technology suppliers. Those that have followed the ‘pendulum’ movements in what RDR proposed, will no doubt be interested in how the next chapter of this story unfolds.
The April 2008 ‘interim’ statement seemed to offer a simple ‘non-advised’ – decision tree – route for consumers to purchase products that couldn’t or wouldn’t pay fees. There was and still is a legitimate concern that the effect of ‘Adviser Charging’ could lead to a ‘financial underclass’ and this would not be politically or socially acceptable. However, by November’s Feedback Statement, there had been some degree of ‘backtracking’ and the FSA was keen to encourage the ‘Guided Sales – Advised’ route, which was felt to be less exposed to potential ‘miss-selling complaints’. Even so, whilst this potentially low cost route to market is still attractive, the opportunity still has a number of hurdles to overcome:
• Can systems and processes be designed that will offer an attractive, easy to understand means for the mass consumer market to engage?
• Can distributors deliver these services in a cost effective manner?
• Can the FSA and FOS collaborate in agreeing a clear set of guidance that protects the consumer and helps to minimise the risk of damaging complaints?
On the first bullet point, the technology companies and a number of distributors are working closely with consumer research groups as well as the FSA, FOS and ABI. Supportive research has been obtained, albeit that this risks being directed to supporting the desired outcome of those who commission it. In addition, innovative and creative design teams look to be coming up with some positive ideas that could positively engage the consumer.
On the second bullet, I think that it is too early to say if this channel could be ‘cost effective’. Much will depend on the degree and volume of consumer interest and fulfilment. However, there is a real motivation to address the problem and whilst there will be those that criticise the potential limitations of this ‘cheaper’ channel, we should be looking at the positive benefits for the whole industry in encouraging mass consumer engagement. Indeed, whilst the products and services may be fairly basic, not everyone can afford a Jaguar. So the analogy of using a Tata Nano (cheap car) to get from A to B may better than nothing if that is all that the consumer can afford. Indeed, they may in time be able to ‘upgrade’ the product, or ‘trade-up’ to a better vehicle.
The third bullet point requires all parties to be open minded and pragmatic in identifying areas of risk in the systems and processes that are being designed. They then need to work positively together to remove or reduce these in a clear and consistent way that also avoids the application of ‘retrospective hindsight’ being used to create another damaging wave of ‘misselling claims. This truly is in all parties interests. Whilst it may not be possible for the FOS to offer ‘safe harbour’ security over the application of FSA regulations and guidance, they must not simply ‘sit on the sidelines’. Having read the response of the FOS to the RDR Feedback statement (Nov 2008), I believe that their approach has been encouraging, though this needs to feed through to proactive action and support (see FOS link here ). Will the industry and regulators rise to the challenge or will they be too frightened of failure to invest the effort in finding a workable solution. Remember that immunising yourself against risk usually means you immunise against the benefits of getting a return.
