With adviser interest in making Platforms part of their business models, it would seem that there is a good commercial case for Platforms. Indeed, it is likely that firms will need to consider not just whether they do adopt a Platform strategy but why they wouldn’t. The FSA Discussion Paper 10/2 has added to the debate with a range of questions about the due diligence, ongoing management, segmentation and customer solution matching along with remuneration methods and transparency as well as best execution.

We have looked at a number of Platforms and written articles as part of our weekly PA column. We have also looked at a recent initiative by Capita that has seen the launch of the Synaptic [Platform] Comparator. There has been some debate about whether it is possible (or right) for a firm to choose a single Platform. The FSA paper said that although they do not expect firms to review the platform market for each client, they do expect firms to consider which platform(s) are appropriate for their client bank – or segments of their client bank – in general terms and then ensure the recommendation is suitable for individual clients…

Different parties have chosen to interpret the FSA statement in different ways. Clearly, there is further debate and lobbying to take place on what is and isn’t acceptable. The Consultation Paper was expected midyear but this has now slipped to Q3 – perhaps giving an indication that there are still some challenges to be resolved in the mind of the regulator. We have written a Paper on the subject of Platforms – available here…. In addition, we have reviewed the Synaptic Comparator product that has now been launched and the article will be published in Professional Adviser in a few weeks. One of the striking issues that Comparator raised was the big, maybe surprising, perhaps even shocking differences in the potential customer outcomes. Platforms do not have simple, consistently clear and transparent charges! Trying to understand the implications of the charges and to compare how these affect customers’ choices is a good thing (some may not agree). If you use a measure such as ‘reduction in yield’ (RIY), or total expense ratios (TER) it is possible to see the ’drag’ of charges on an investment and this can vary significantly between first and second choice as well as the best and worst – hundreds, thousands and tens of thousands of pounds!

By fragmenting the issue of choice, some may see comparison tools as undermining the modus operandi of Platforms as being a single economic asset management solution. However, the differences cannot be ignored and the industry is likely to close some of the gaps through competitive pressure and in time is also likely to consolidate Platform choice through M&A. We believe it is better that the industry sees and addresses the differences of choice and value early as we do not want to see another potential mis-selling scandal that hurts everyone.

Advisers need to look at Platforms to assess whether they are right for their business and for their clients. They should rule in or out of having a Platform strategy with a conscious justification that is reviewed regularly and tested against segments and individual needs. The issue of choice remains, not only at outset (even if a single Platform strategy can be justified when challenged) but also through ongoing reviews for how assessments are carried out and with what frequency – periodic or on each customer transaction.

As for Platform Operators (current and potential), the question of their own business case must be robustly assessed as there is a current trend to reduce costs that could reduce or remove margins. However, there is also a question about whether some Providers can decide not to become Operators if they are to remain viable businesses in the future.

On one slide (of too many) that was part of the presentation about the market challenges – including the global and local economy and regulation (RDR etc) – I listed a number of bullet points to illustrate the economic environment:

My point was that it is too often too easy to focus on the negatives and see the ‘glass as half-empty’ (some see it as completely empty!). I gave a personal example of how we need to put problems and challenges in context – without ignoring them for what they are. I was relating a story about the challenges of having a daughter about to do ‘A’ levels and the pressure that I was placing on her to study in order to get the grades required by her University offer (I am apparently more of a ‘stress transferor’ than a stress owner). All of this paled into insignificance (well not quite…), when, after a week of racing heart rate (tachycardic) and two occasions when she collapsed, she was eventually rushed into hospital with what turned out to be ‘massive bilateral pulmonary emboli’ (two big blood clots on both lungs) that were causing significant strain on the heart and required urgent thrombolysis. My daughter has become a bit of a phenomenon due to the rarity of the problem in someone so young without obvious linking causes, but I am sure she would prefer not to have this notoriety.

The good news is that the advice and treatment by the experts seems to have worked and although still recovering with ongoing medication, the current status is less critical and worrying than three weeks ago. The point is that however difficult the situation, there is usually a way of dealing with it and in the context of other situations it may not be as bad as we first feel.

Going back to the presentation and the bullets on the various slides, we should remember that our industry often has the knowledge, skill and experience (and products) that can help consumers to manage or mitigate some of the consequences of the problems that the economy presents. We should be proud of what we do and positive about the value we create. As I said (not original) last week, ‘the only constant is change’! Our industry needs not only to cope with change, it needs to be resourceful and adaptable in order to ‘create positive change’.

Much effort and investment has been put into the Wealth and mass affluent propositions of most distributors as they come to terms with the need to charge (and justify) fees for advice. Much concern remains about whether consumers will pay fees for advice after the 2012 deadline and different interest groups are expressing conflicting views depending on their own position and motives. It’s worth remembering that consumers currently do pay for advice and whilst it is often still ‘disguised’ as commission, the reality is that after 2012, we will be working in a world where all investment advice (other than Basic) will require a fee to be identified and paid. When people ask if they would be willing to do so in the current environment, it has to be set against the context of the products current pricing and adviser’s remuneration method.

Post 2012, the price of the product will be the factory gate price and so will be different to what they would usually be charged today. The advisers charge will be specifically expressed as a monetary amount and if properly justified as being of value to the consumer, should be an acceptable price for what they get. Perhaps some advisers are struggling to justify the ‘value’ that their services give to customers and if so, they have either an education or articulation challenge (perhaps for themselves as well as the customer)!

I have heard Product Providers talk about how little they need to do to cope with the new environment, some see that they simply set the commission of the product to zero and that will be sufficient. I beg to differ, the new environment is going to be competitive and it will expose Product Providers inefficiencies in a way that they have not seen so far. They will need to innovate, make sure they add real value and deliver excellent service if they are to convince advisers and customers that they are the right choice.

Many advisers have started to review, re-engineer and improve their business propositions in readiness for the new requirements. However, just as Providers need to ensure that they are efficient and deliver excellent service, advisers will be competing to offer their services at attractive fees, which in theory can be compared by consumers as with many other commodities and services.

We have always said that technology has an important part to play, and whilst it is a cost to a business, chosen and implemented properly, it will deliver efficiencies and service improvements that help secure business and improve the bottom line.

Those who are fearful today are probably right to feel that way…they need to develop a clear strategy for not just how to cope, but how to prosper.

Having worked in Financial Services for many years with roles in Sales & Marketing and Regulation, I have witnessed a remorseless increase in the attempts to control the risks of inappropriate advice being given to the consumer. I applaud the principle and much of the effort, but I also share the frustration of constantly being expected to create and keep the mountain of documentation/data records that show that the right procedures and outcomes have been applied. The reason that the regulation has continued to grow is twofold – first, regulators rarely propose a reduction in regulation (especially if it is their career) and second, we have suffered with ongoing evidence that bad practice continues. Indeed, even where people follow the rules, some have done so as a sop and found ways to gain at the expense of the consumers best interests.

A major bank has had its sales practices exposed by a leaked document showing how they ‘incentivise’ (or pressurise) staff to sell riskier product choices with greater points value or commission to influence performance. The headlines do not reflect well on the bank themselves, but they also tarnish other Financial Institutions and the Financial Planning market generally. Consumers should be able to trust all advisers and can find it difficult to distinguish good from bad. However, it is made worse when the corporate culture of what should be a respected brand is driving the policy and expectations of adviser behaviour in negative ways. The bank claims that its processes adhere to the regulations and that they would assess the client’s needs along with attitude to risk etc before recommending a product. Whilst they probably do, it is also the case that skewing the rewards to offer more for one product recommendation than another is likely to drive behaviour towards a particular outcome.
Perhaps RDR will address such policies and behaviour, but if people are intent on finding ways around rules and/or choose to ignore risk, there is no absolute guarantee that consumers will be protected.

In one of my previous roles as a director of a Plc, one of the things that became a priority after we floated the company on the Stock Exchange was ensuring that we were aware of and complied with Corporate Governance standards. Most of the Combined Code is common sense, though it is interesting how many times large Corporations selectively ignore some of the standards if they don’t suite their company or personal goals. Alongside our ‘formalised’ application of the Code, we also took out Directors and Officers Liability Insurance. At the time, I didn’t even consider not doing so. However, it got me thinking about why I should feel the need to ‘insure’ the risk that my behaviour might not be up to scratch and another question that came to mind was why was it right that the Shareholders should pay for such insurance (as with most companies, it was a business expense). Ultimately, in extreme cases, we have seen some Criminal Prosecutions of Directors, but as with the dagger in the steering wheel, maybe one way of ensuring that Directors retain a focus on their own ‘moral compass’ is by not offering them protection funded by the shareholder (or maybe we should ask why they need it at all). Regulation can and does offer a degree of security and protection, insurance can provide some security in the event of failure. However, knowing what is right and wrong and applying that for the good of the consumer should severely reduce if not remove the need for such arrangements.

• Policy Statement PS10/6 with Final Rules following what was proposed in CP09/18 (June 2009)
• Consultation Paper CP10/8 with proposals for how commission and remuneration are disclosed in respect of Pure Protection business – reconciling differences between COB and ICOB rules
• Discussion Paper DP10/2 with much anticipated proposals for how Platforms will be regulated

Key points (summary of the summary)

• Most of what was proposed by the FSA in the June 2009 Consultation Paper CP09/18 relating to adviser labelling, non-advised services and adviser charging are being taken forward
• The final rules have removed the proposed requirements for Product Providers to monitor adviser charges – the so called ‘decency test’
• ‘Restricted Advisers’ will no longer be required to use a ‘mandated’ form of wording when disclosing their advisory status (but status disclosure will still be required)
• The FSA has set out proposals for Product Provider commissions to be disclosed where Pure Protection products are sold alongside investment advice
• Where advisers elect to sell Pure Protection products under the COBS rules, rather than under the ICOBS rules, they will not be required to apply adviser charging requirements
• A strong and consistent emphasis on establishing and maintaining systems and controls – we believe that technology will be a key mechanism to support this requirement
• The FSA acknowledges that changes to some of the rules and proposals may be necessary once the outcome of the European Commission’s work on Packaged Retail Investment Products (PRIPs) and the review of the Markets in Financial Instruments Directive (MiFID) are known
• No factoring will be allowed for Adviser Charges
• No dilution of Professional Standards (including QCF level4 threshold) being applied to independent and restricted advisers (with the only exception being Basic Advice)
• The FSA’s conclusions on whether increased professional standards should be applied to pure protection advisers will be published in June.

Market and Distribution

• As expected ‘Adviser Labelling’ will require advisers to describe their services as either ‘Independent’(unbiased and unrestricted) or ‘Restricted’ (single-tie, multi-tie, simplified, or basic advice)
• The definition of ‘Retail Investment Products’ now extends beyond ‘packaged products’ to be much more wide-ranging and this may be amended further depending on the PRIPs review
• ‘Relevant Market’ comprises all retail investment products that are capable of meeting the investment needs and objectives of a retail client… it is possible for this to be focused such as on ‘ethical’ investments or maybe on what products are suitable to meet the needs of charities or trusts – but it is felt this will be the exception not the norm
• It is not proposed to introduce a new regime for regulating ‘Simplified Advice’
• There will be no ‘safe harbour’ from how the Financial Ombudsmen (FOS) may deal with customer Complaints under Simplified Advice, the FSA has said that the best way of avoiding problems will be to ensure that advice given to customers is ‘suitable’ to their needs
• ‘Basic Advice’ will continue for ‘Simplified Stakeholder’ products
• Money Guidance was not specifically covered, but the timing of the recent publications coincided with a national roll-out of Money Guidance following pilots in the NE &NW of England

Adviser charging

• As expected, Adviser firms should only be remunerated through adviser charges for any investment advice on retail investment products that they provide to retail clients
• The final rules will require firms to disclose charging structures for services (‘menu’ of charges) and total specific adviser charges (price of the meal chosen)
• The FSA does not intend to set expectations of firms’ charging structures. However, it has said that it may publish examples of good and bad practices following further discussion with the industry (most likely when it has more experience/evidence of what is being done)
• Ongoing charges may be made for ongoing services. However, firms must provide:
• details of the ongoing service and associated charges, along with how clients can cancel the service
• a clear explanation of the ongoing service and charges in way that is fair and not misleading
• monitoring systems and controls that ensure clients receive the ongoing services they have agreed to
• Advisers will not be able to receive additional income outside of adviser charges in relation to Distributor Influenced Funds
• When determining whether product provider commission can continue to be received on ‘old business’ sales made before the new adviser charging rules apply, firms will be have to assess whether the product is essentially unchanged (commission can continue to be received), or if the change has materially resulted in the product becoming a different product (the new adviser charging rules will apply)
• Adviser Charging for vertically aligned businesses applies in a similar way to other distribution models with a clear separation of product and adviser charges with no cross subsidisation
• Debate about Fund manager charges revealed complexity and potential for tax charges when looking at issuing different share classes to enable charges to be recovered. The FSA feels that it is better to deduct charges before the investment allocation is made (Wrap Platforms often use Cash Account)
• Non-advised services will not be subject to adviser charging rules at this stage
• No inducements that conflict with adviser obligations to act in the customers best interest and that do not enhance the quality of service for the client
• It was proposed that ‘Factoring’ services would not be allowed by Product Providers, but following discussions with the industry and OFT, the FSA has decided they should ban factoring and loan funding of adviser charges from whatever source

Platforms

• The FSA has raised a number of issues that are likely to result in changes to the way Platforms are regulated under RDR
• They have re-labelled Plaform Providers as Platform Operators
• They want to look at how Platform Operators are remunerated, how adviser charging should operate through the Platform and how independent and restricted advisers use Platforms
• They want to improve transparency of charging so that it is clear to the customer what they are paying, for what service and what value they get as a result of using a Platform
• The FSA acknowledges Platforms are a service, but says they have product characteristics and ownership relationships that could cause potential issues and conflicts
• The FSA is proposing to prohibit payments from Product Providers to Platforms in respect to advised retail investment business.
• Platforms will be expected to obtain and validate instructions from a customer to pay adviser charges.
• The FSA emphasises the importance of the transparency of cash account charges and the way in which cash accounts are managed and funded.
• The FSA has proposed to prohibit product providers from deferring, discounting or rebating product charges in a way that could appear to offset any adviser charges
• There are mixed views about whether using a single Platform can be independent
• ‘Vanilla Wrappers’ not necessarily being a Provider Product was also raised
• Platforms will not necessarily be expected to offer all Product choices or all funds
• The issue of assessing need, choice, value and both current and ongoing suitability as well as best execution will most likely create a subsidiary need for ‘research and selection review’ functionality/software services and we are aware of developments being at an advanced stage for such services

This is a very brief (believe it or not) summary and there is much that we have not included or expanded upon. There are significant implications for Providers, Distributors and Services and Technology suppliers. All have major interdependencies and so need to consider not just how they are directly affected but how other parties will be and how they might respond as a result.

Written by Mark Thelwell - Visit Website]]> http://www.at8group.com/blog/2010/04/15/rdr-%e2%80%93-a-thumbnail-sketch-of-the-march-papers/feed/ 0 http://www.at8group.com/blog/2010/04/01/heads-up-on-rdr/ http://www.at8group.com/blog/2010/04/01/heads-up-on-rdr/#comments Thu, 01 Apr 2010 06:00:45 +0000 Mark Loosmore http://www.at8group.com/blog/?p=1044 Ouch, our heads hurt at AT8 at the moment! Unfortunately not from too much partying (though the Money Marketing awards were very good!) but from working through the latest outputs from the FSA. Those lovely people from Canary wharf produced not one update last Friday but three, with a total of over seven hundred pages for people to plough through.

Luckily here at AT8 we have everyone’s favourite compliance (well ex-compliance actually) man to work through the documentation for us and outline the core findings.

In essence, the papers did what they said they would do; provide more clarity and certainty to some of the issues raised by the previous papers (especially CP09/18 and CP09/31). They don’t appear to have had too many U turns (with a few noticeable exceptions including provider decency checks) and there were very few major surprises.

I don’t propose to go through the detail of the findings of all three papers in this blog as we couldn’t do it justice in such a word constrained format, but I did think it was worth pulling out some core themes.

The first area to note is that there is no let up in the move to the new adviser-labelling regime. Independent Advice has had some clarification around the definition of ‘relevant market’ and the scope of ‘retail investment products’. It has been recognised that it was ok for some advisers to offer advice across a narrower ‘specialised’ market such as ‘ethical investments’, but they do not expect there to be many justifiable specialisms. It was also noted that it would be possible for a set of products to be excluded from a firm’s range of options if they were found to be ‘not suitable’ for their customers. These are pragmatic interpretations that should be welcomed but not confused with a dilution of intent – the FSA still appears focused on delivering the new labelling and new standards of advice for the benefit of customers.

There is also no let up in the move to fees – adviser charging – or to more professional standards across the board – independent and restricted advisers alike.

It is interesting to note that throughout the paper there is consistent referral to the use of effective systems to monitor and log RDR compliance. Those readers providing IT systems to advisers would do well to get under the bonnet of what this will mean in relation to what they currently provide as meeting this requirement represents a real opportunity to provide a clear business case for the use of IT.

One big area of clarification is in the world of Platforms in the form of DP 10/2. The paper looks at:

• How the Platform Operators are remunerated for the services under the RDR regime
• How adviser charging should operate through platforms
• How ‘Independent’ and ‘Restricted’ Advisers use platforms

The FSA leaves a clear message that they are very concerned about the potential for product bias that could arise from using a single platform (or even a small number). They clearly suggest that advisers need to ensure that the platform used does not disadvantage the client in any way. The ability to evaluate and show the relative merits of a Platform’s ability to meet the needs of customers will need the help of a new breed of platform comparison tools. We note that IFA Market Watch now has a price comparison tool for platforms while Capita has just launched a tool that includes qualitative information as well as pricing information.

As the industry digests the outputs, time marches on and people need to accelerate their RDR readiness programmes. There are few short-cuts available, but external advice could help cut through some of the planning cycle. If anyone wishes to discuss their RDR readiness plans please contact us on 0121 314 2504 or e-mail marketing@at8-group.com.

Written by Mark Loosmore - Visit Website]]> http://www.at8group.com/blog/2010/04/01/heads-up-on-rdr/feed/ 0 http://www.at8group.com/blog/2010/03/18/regulation-%e2%80%93-%e2%80%98damned-if-they-do-damned-if-they-don%e2%80%99t%e2%80%99/ http://www.at8group.com/blog/2010/03/18/regulation-%e2%80%93-%e2%80%98damned-if-they-do-damned-if-they-don%e2%80%99t%e2%80%99/#comments Thu, 18 Mar 2010 07:00:23 +0000 Mark Thelwell http://www.at8group.com/blog/?p=1024 It is an interesting dilemma as I consider whether I should feel inclined to defend the FSA! Today, the FSA announced its annual business plan for 2010/11 and they have made some controversial (confrontational?) statements…

The plan shows an increased budget expenditure of 18.3% to £491m. Staff costs have increased by 16% as the regulator is recruiting 460 additional personnel to increase its supervisory activity – as Hector Sants has said, ‘a more intrusive regulator is going to cost more’. We should not forget that the regulator is responsible for more than just the Life and Pensions sector to which much of our core readership belong. Indeed, with the recommendations of the Turner Report, Solvency II, Basel enhancements, a more EU-centric regulatory influence and not forgetting our favourite subject of RDR, it is clear that there are many ‘spinning plates’ to handle. Added to this we also have the FSA talking recently about its intention to focus on what sort of ‘Product regulation’ it should apply (looking at Provider business models, product design, purpose, marketing and stress testing).

Reading the comments to articles in much of the financial press – mainly from IFAs – and it is clear that there is a strongly cynical attitude towards the FSA and its record on regulation. UK plc has often boasted in the past about the success of its ‘light touch’ regulatory regime applied to the wider Financial Services market. Many – perhaps with the benefit of hindsight – have questioned our dependence on the sector and its true value to the wider economy. As with the mis-selling scandals of the past (pensions, endowments and PPI), we seem to apply ‘acquired wisdom’ to how and why the warning signs were all too often dismissed or ignored – something that is evident in the latest crisis and will, no doubt, be repeated again in the future (crisis and calm cycles are as real as boom and bust).

The FSA (prompted by public opinion, political direction and a degree of self-justification) is now talking tough about what it is going to do. The pendulum of ‘light touch’ has swung to ‘intrusive and controversial’… Some of the commentators are crying foul about the tough stance being applied ‘evenly’ towards an IFA sector that has a good track record of behaviour. They have quoted comparative statistics that show the number of complaints against IFAs is relatively small [smaller] than the Banking sector. I recall a phrase from my past, that ‘there is nothing as unequal as treating people as equal’. I agree, and it is one of the difficulties that regulators face when applying standards and supervision that seems to focus on the lowest common denominator. The IFA community does feel that it is disparaged by the behaviour of other sectors – usually claimed to be Banks/Bancassurers – that rubs off on their reputation and the decline on public confidence.

Herein lies the rub, standards should be consistent and customers should expect the regulator to set high expectations of the industry and ensure – through supervision – that all parties are meeting these expectations. When the respective parties – providers, IFAs, tied advisers, Bancassurers etc – comment about each other, they often claim that they are not the problem, it is someone else! My experience is that not all IFAs are good and not all Bancassurers are bad. The regulator applied a ‘light touch’ and was criticised for doing so, now the regulator is saying that they will be more prescriptive, look at a wider scope and will be more interrogative (potentially combative). The industry is unhappy… It sounds like the regulator is ‘damned if they do and damned if they don’t’.

Depending on the risk of activities and the application of ethics by companies and individuals (not just a statement of what they are by the regulator), we should be able to adjust the regulatory burden. However, with the track record that we have seen over many years, we are not currently in a strong position to argue against the need for greater regulatory control in some, if not all aspects of Financial Services. Sadly, it is the actions of certain parties that spoil it for everyone. Often, it is the lack of a ‘moral compass’ and/or a Gordon Geko belief that ‘greed is good’ that undermines the standards that many operate as part of ‘business as usual’. The ‘police’ – the regulator – can only do so much. The ‘society’ of Financial Services (all parties) need to take greater responsibility for how it behaves collectively, but to do so in a constructive way. Blame and counter-blame has not worked well so far. ‘Perception is truth’ and the truth is that the industry is not perceived as well as it should be. We all have our part to play – let’s do so fairly and positively.

Written by Mark Thelwell - Visit Website]]> http://www.at8group.com/blog/2010/03/18/regulation-%e2%80%93-%e2%80%98damned-if-they-do-damned-if-they-don%e2%80%99t%e2%80%99/feed/ 0 http://www.at8group.com/blog/2010/03/04/questions-questions-but-what-are-the-answers/ http://www.at8group.com/blog/2010/03/04/questions-questions-but-what-are-the-answers/#comments Thu, 04 Mar 2010 07:00:20 +0000 Mark Thelwell http://www.at8group.com/blog/?p=987 Distributors
• Have you read the RDR papers and understood the implications – not just what the journalists say or some of the rumours and interpretations of others?
• Do you understand the differences between ‘independent advice’ and ‘restricted advice’ – which best suits your current/future business model (the scope of what an IFA does today, may not be sufficient for post 2012)?
• Do you realise that ‘Adviser Charging’ applies to ‘independent’ AND ‘restricted advice’ (Bancassurance is not ‘getting away with it’ as someone recently claimed)?
• Do you already charge fees in the way you will post 2012… if not, do you have a plan for how you will do so… how will your customers respond?
• Do you realise that Restricted Advisers – including those offering ‘Simplified’ advice are required to have the minimum threshold of QCF level 4 that Independent Advisers do (some think Simplified Advice has a lower threshold)?
• Existing Advisers must have achieved QCF level 4 by the end of 2012, otherwise they cannot advise – even if they are supervised! New Advisers after 2012 may be able to advise – supervised – once they attain QCF level 3
• Will you segment and focus on Wealth Management or offer a mass-market service – can you do so profitably – what will you do about non-profitable customers (do you know who they are)? Will you ignore them, outsource servicing or try to offer an automated/call centre Simplified advice service?
• Will distributor scale (Networks/Nationals/Bancassurance) prevail – obtaining discounts to pass onto customers, thereby offering potential savings to customers – or will small specialists build better relationships and trust?
• Have you looked at how you can optimise efficiencies to ensure that your business model will be commercially viable in what is likely to be a more price competitive market?
• Failing to plan is planning to fail… this applies to business as it does to customers
• How will you collect fees – Cheques (being faded out), Standing Orders (lack control), Direct debit (you have to have scale), via providers (fee offset)

Manufacturers
• Are you putting off acting on the RDR proposals until they are more clear?
• Do you know how your business will survive and grow under the RDR regime (strategic view and operational view)?
• Do all your key managers know and understand what RDR will require of your business?
• Are you aiming at broad product segments or niche dominance?
• Will you be competitive… looking at product segments – distribution channels – brand strength – price – cost efficient?
• Which companies do you expect to survive/disappear?
• What is your M&A strategy (aquire or be aquired)?
• Are Platforms an opportunity or a threat to your business model?
• Will ‘Product Wrappers’ displace Provider Products?
• How many Platforms are needed and will there be expansion or consolidation?
• Do you rely on independent adviser distribution or choose to ‘own’ distribution?
• How many Product manufacturers will survive the next five years?
• What flexibility of options for ‘Fee Offset’ against the Product will your systems need to allow?
• Which fees can come from the products?
• Will the Distributor have to run multiple illustrations to show different scenarios for how fees can be taken?
• How will you manage ‘Decency’ checks?

There are many more questions than we have set out above and both manufacturers and distributors need to consider how they would answer them and what the implications are for their business. The market will change for all parties over the next five years… the survivors will most likely be those that are evaluating their position and responding now. There is no simple or right answer and the only constant will be change, but those that do not see the need to adapt, will most likely not survive.

Written by Mark Thelwell - Visit Website]]> http://www.at8group.com/blog/2010/03/04/questions-questions-but-what-are-the-answers/feed/ 0 http://www.at8group.com/blog/2010/02/11/extending-the-spotlight/ http://www.at8group.com/blog/2010/02/11/extending-the-spotlight/#comments Thu, 11 Feb 2010 07:00:12 +0000 Mark Thelwell http://www.at8group.com/blog/?p=960 Last week I mentioned that Dan Waters of the FSA, had commented in a speech to a McKinsey’s Conference about Wrap and the FSA’s forthcoming explanation of their ‘deliberations’. In the same speech, Dan also talked in detail about how the FSA is looking to extend its view of the investment value chain to look at product governance and oversight.

The FSA has traditionally focused its regulatory attention on the point of sale transactions at the end of the value chain. As most of you will know, this includes things like Key Features, Adviser status and commission disclosure, as well as rules on how performance is presented. The FSA has become increasingly concerned that this focus and potential for intervention may be too late, and could leave the door open for more ‘mis-selling scandals’, which they are determined to avoid in the future.

Dan Waters has a specific interest in tackling risk management as he is the first ‘Director of Conduct Risk’ at the FSA. As a result of his view that the regulatory focus may be too narrow, he is looking at how they look more deeply and further up the value chain to include product design and oversight by the product providers (manufacturers). In doing so, the FSA intend to look at the business models of providers to see what the core strategy and drivers of income and profitability are. They will be looking up-stream of the point of sale including product development and marketing, as well as down-stream at post-sale handling and servicing. Whilst you may think that this would be covered and motivated by the obligations of TCF, the FSA seems to be unconvinced that Providers are designing products that add customer value or address real needs. Dan Waters believes that Providers are focused on designing what can be sold, or trying to beat a competitor, rather than trying to meet the needs of the consumer first and foremost.

How will this extension of supervisory scope manifest itself? Well it would seem that the FSA will be looking to test consumer outcomes (and/or see what testing the Providers have done?). They will be looking at stress and scenario testing to see what type of customer is and isn’t appropriate for the product and checking to see if the Provider has been clear about what the product does, who it is for and if certain key characteristics such as the nature and scale of risks is properly presented. The stress testing should look at a range of market conditions that could trigger certain product features that may not be immediately obvious or expected in normal conditions. The triggering of MVAs on With Profit Bonds in the past was a surprise to some customers (and advisers!) and I expect this is the sort of area that the FSA will want to expose as a potential risk. The process should be part of a systemic and objective assessment that is built into the existing supervisory framework.

Some may fear that this interest in the product governance and design is leading to a situation similar to some EU Countries which regulate product design. Dan Waters said that this wasn’t their intention. However, it is clear that whilst the spotlight on distribution is not changing, the spotlight is going to be extended to look at the products themselves and the motives and behaviour of the manufacturers. RDR is likely to cause some Providers to redesign parts or all of their product portfolios. In doing so, they should bear in mind that the FSA is going to be keeping an eye of what they build and why, as well as how it is sold.

Written by Mark Thelwell - Visit Website]]> http://www.at8group.com/blog/2010/02/11/extending-the-spotlight/feed/ 0 http://www.at8group.com/blog/2010/02/04/wakey-wakey-every-second-counts/ http://www.at8group.com/blog/2010/02/04/wakey-wakey-every-second-counts/#comments Thu, 04 Feb 2010 07:00:09 +0000 Mark Thelwell http://www.at8group.com/blog/?p=953 Countdown

Well here we are, already one month into 2010 and with just under 35 months to go before the RDR deadline of December 2012! It may be that there are many out there thinking this is still a long way off and with the World Cup and the Olympic Games being ahead of the RDR deadline, some may be lulled into believing that they can put off dealing with how they should respond until a later date. However, what we shouldn’t ignore is that the FSA is not showing any sign of moving the date or ‘softening’ the requirements, and the implications of change are potentially huge. To be fair, the FSA has still got to provide the detail in a number of areas and they have been criticised by advisers and providers for not having done so more quickly. They probably deserve this criticism and whilst all parties have a tendency to be defensive, the FSA has been rightly critical of some in the industry for delaying the start of the transition process.

As we have said on a number of previous occasions, the RDR isn’t going to go away – even if there is a change of Government. And, even with 35 months to go, the size of the task should not be underestimated. From a number of our regular conversations with managers in Distributors, Providers and Technology suppliers, it is clear that some people either haven’t read, or haven’t understood the requirements and implications. Some people still think that ‘Restricted Advisers’ will be able to get some form of commission based remuneration – reasoning that with a single tie, there is no product bias influenced by commission, so it must surely be ok. Whilst it is still not entirely clear how the articulation of the charge for advice will be calculated, the FSA is still insisting that the charge will be separate from the product price, that it will not be a ‘generic’ percentage and that it will need to be explicitly identified as a monetary amount. The challenge and potential complexity will be how to account for basic salaries, bonuses (which can’t just be for selling a product), and other remuneration elements. Will large distributors (Networks and Bancassurers) be able to negotiate such significant product pricing discounts as to make it difficult for smaller firms to compete. The issue that distributors need to consider is how they will respond when the FSA provides the detail, or to consider what their preferred approach will be beforehand and then communicate that directly to the FSA or lobby their trade body now.

Given that providers cannot offer ‘factoring facilities’ will the Networks try to do so, or will we see lending facilities being made available to customers to pay the fees in the same way as we have seen the GI market use these arrangements to fund the monthly cost of premiums.

With so much attention being focused on the distributors, it is easy to forget the Providers – manufacturers – of the products. Is the ‘factory-gate’ price as simple as ‘zeroing’ the commission? Some seem to think it is… However, Providers will need to look at what options they allow for offsetting the Adviser Charge against the product. Do they offer a wide or narrow range of options – the latter could be construed as Provider influence? How are illustrations going to show the effect of the options on benefits over time? What will they do, or be expected to do when a client cancels a plan or changes adviser? How will providers identify, monitor and report against the ‘decency’ test of Adviser Charging (especially when they don’t have all the facts in relation to what has been agreed between the customer and adviser)? Will the current number of Providers be able to compete in a more transparent world of ‘factory-gate’ pricing or will we see significant consolidation? Will they focus on niche products or will they be more generalist and use their brand to support either a single or multi-tied model to distribute their products? Will it just be a case of selling existing products with minor tweaks, or will a major redesign be needed? Will different products be used via different distribution channels… less ‘bells and whistles’ for Simplified Advice routes to market? Will anyone seize on the opportunity to manufacture more Stakeholder products?

What software will be needed to support truly holistic advice, what will be the role of Platforms – something still awaiting an FSA response (commented on by Dan Waters this week). What systems will be needed to try to cater for Simplified Advice and what opportunity is there for technology to support Basic advice business distribution?

There are lots of questions and the answers are not always known or obvious. AT8 is helping a number of providers, distributors and technology companies navigate through these issues. We believe that all parties should be considering them now and not just looking at the ones they think affect them most… the decisions of others may affect the conclusions that different parties reach at a given point in time, so there is some iterative ‘what if’ thinking to take place if it hasn’t already started.

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