By Malcolm Murray, Marketing Director, Transact
Following the appointment of Lady Ashton as the the EU foreign policy chief, I read recently that concern has been expressed that a French EU commissioner, Michel Barnier, has been appointed as the head of the internal markets and financial services portfolio in the next European Commission.
I also read an article taken from an Australian publication called Eureka Report and passed to me by Mike Howard, our Chairman. In this article, the author, a genuine independent financial adviser, highlighted the fact that the Australian public is largely unaware that some of the largest financial advisers in that country are not “independent” at all, but are owned by insurance companies or banks. A high proportion of those interviewed did not realise that the advisers with whom they were dealing are owned by one of the six largest product providers. Unless the name of the bank or insurance company appeared in the name of the advisory firm, the percentage of the public who believed they were dealing with an independent adviser varied from 36% to 61% (Source: Roy Morgan Research).
As for where the superannuation business written by these advisers was placed, it will come as no surprise to learn that those owned by AMP placed 83% with AMP and, in the case of those owned by AXA, the figure was 78%.(Source: Roy Morgan Research). The comment from the author that most interested me was “The results suggest a complete failure of the Financial Services Reform Act from earlier this decade, which had the aim of ensuring clients understood the payment structure and ownership structure of advice; that is to have any potential conflicts of interest disclosed”.
So is there a connection between these two stories?
I always believed that the RDR stood a chance of successful implementation because the background to retail financial services in the UK is based on broking. Prior to the late 60s, tied agents were a minority group and represented mostly Canadian or Australian life offices. Polarisation was born out of the need for the client to understand the nature of the adviser's status – independent or tied. The RDR builds on that and adds the rider that, if the advice is to be independent, then payment cannot be determined by the product provider. It is a major step on the road to distinguish and reinforce the concept of genuinely independent advice.
In France and, indeed, most of Europe, banks and insurance companies have been the dominant suppliers of financial services and they have controlled the distribution through their own tied agents who have been paid by commission. If you drive through any small town in France there is likely to be the unmistakeable blue sign of AXA with the name of the local agent shown prominently on it. There is not much danger that he could be mistaken for an independent adviser. I see no objection to such a person being paid by commission. The problem arises, I think, when we have a situation such as that we see in Australia. There, as in so many other countries, the tradition is that of the tied sales force. Over the years the tie to a single provider has metamorphosed into the “general” or “multi-tied agent”. This is often when the line is crossed, where the temptation to gain the advantages of both independent and tied is too great - not just for the salesman, but also for the product providers. In the Australian example quoted above, if the adviser is “owned” by AMP or AXA then one would expect that all the superannuation business was placed with the host company. In my experience, the more successful the salesman the less likely it is that the host company will object to some of the business being placed with other providers. It seems as if it is only in the UK that this is regarded as “not playing the game” and we insist on a clear distinction between tied and independent.
So what will happen to the RDR if the EU decides that it does not suit its way of doing business? Do life companies and banks, that prosper under both the Australian and European systems, think that ultimately the UK will have to fall into line? Is that why they still seem to think that it is worth buying up advisory firms despite the losses that such excursions have racked up?
Or do we believe that the qualities of honesty, transparency and fair dealing are ones that we should fight to retain? The trouble we face is that it is politicians who will ultimately decide and that is a cause for concern.