Now, at the consumer-level this all sounds pretty technical/boring/inward-looking but should the FSA proceed in line with last week’s press reports we really will be on the cusp of a new dawn. Should the suggestions that legacy commission will be more broadly defined than previously expected and that fund managers would be banned from paying life companies for distributing their products prove accurate we really are going to find ourselves in a new world. And a much better one at that.

Considering the legacy commission issue first, I think everyone agrees that the long-term nature of many products leads to complexity in terms of changing rules down the track. In this instance it seems that where a client tops-up an existing investment or switches between funds on the advice of his or her adviser, the adviser will no longer be able to receive commission from the product provider.

This is probably more seismic than it might seem as most legacy product systems will be unable to cope with the change and it is therefore possible that clients will leave legacy arrangements as they are and invest any new money in newer, more modern solutions. I would also hazard a view that the change will accelerate the market shift toward platforms and particularly toward truly open, transparent platforms such as Nucleus, Transact and Novia.

As with any change there will always be some people disadvantaged but the regulator has to draw a line somewhere. Industry calls for a five-year sunset clause had some merit but then again if something has been wrong for a long time there is little merit in perpetuating the root cause.

A slightly bizarre footnote is that moving from one platform to another will not be considered advice and will therefore not be challenged by these rules. I can only imagine this holding for unwrapped holdings where the switch is not from one packaged product to another. It’s hard to imagine an in-specie Sipp transfer being outside the scope of the rules!

In a rather challenging week for life company IT executives (and pricing actuaries), the suggestion that fund managers be banned from providing rebates to life offices is progressive in the extreme. It won’t be true everywhere but there are many, many examples where the pricing structure of the product is significantly dependent on the product provider receiving shelf space kickbacks or distribution allowances from asset managers to make the whole thing just about work. Banning such payments is intuitively obvious at a time when the FSA is seeing to remove all bias from retail financial services.

Implementing any ban could prove to be the biggest nightmare for a sector already under the strain of advisers/clients increasingly adopting platforms and the scrutiny of analysts questioning the business model. Even if one can put the catastrophic economic impact to one side (for a moment) the technology and operational implications will be massive. Spending loads of money to ensure you can no longer receive a significant chunk of your revenue is seldom a cool place to be!

On the straight financial point, this has been coming for a long, long time. In fact, I’d argue that the sector’s decline began when providers started offering the funds of third parties and has only accelerated since then. When the IFP was established and advice became more client-focused and the early pioneers of truly open architecture started their movement the writing really was on the wall.

Should a rebate ban come into force, those walls will surely start to tumble, the sector will crumble and billions of pounds of client money will be liberated. Given the new transparency is gradually creating a more competitive market one would hope that most of the money moving around will find itself in a better place.

David Bowie said he still didn’t know what he was waiting for. Well, we’ve been waiting for progress like this for a while now. Ch…ch…ch…changes indeed.

Today the Money Debate brings you two sides of a debate.

Here is Jelf’s head of benefits strategy Steve Herbert. We’ll do the full quote - “It has become evident in recent months that the economic environment is exceptionally bad, and possibly the worst scenario for more than a century. Auto-enrolment will add extra costs and duties to already hard-pressed employers, at a time when they can least withstand such extra burdens.

“But the issue goes further than that.  Employees are facing stagnating pay-packets and increasing living costs, potentially for the next 5 to 10 years.  Given this, few are likely to be able to find extra money towards a retirement fund.”

“Launching auto-enrolment against this backdrop increases the risk of a failure of this vital legislation, and given the fragile state of UK pension provision we would urge the government to listen to employers.”

However we have a contrasting view from an admittedly former Work and Pensions Secretary (oh and former Chancellor) Alistair Darling quoted in IFA online from the NAPF conference.

“If you delay these [reforms] for more than a year that is effectively saying it is not going to happen.”

For instance, look at the experience we have in the doctor’s office. We go in, we are evaluated, diagnosed, and prescribed a recommendation solution. In all likelihood, the only thing we walk away from the doctor’s office with is a small piece of paper with our prescription. We don’t ask the doctor for a written medical report of our symptoms, the doctor’s analysis, and his solutions; we just want the answers.Similarly, the written document summarizing the analytical process is not really the outcome of most professional engagements. The lawyer may prepare a written Will or trust for the client, but that IS the solution itself; the lawyer often doesn’t prepare a written document explaining the analysis conducted to arrive at that solution. Not does the accountant in most circumstances. What we want in those cases is the solutions themselves, or a brief written summary of what recommendations are and the action steps to be taken. Not an extensive analytical document.Yet imagine the alternative in today’s environment: after an initial data-gathering meeting, the clients schedule a follow-up meeting to receive their recommendations. The planner sits them down and provides a single piece of people with a list of 5 action steps for them to take regarding portfolio changes to make, how much to save to the 401(k) plan, and how much of which insurance coverage to buy. The likely outcome? The clients would say “thank you very much” and walk out of the office and never implement? Why? They have no buy-in to the solutions, no basis to evaluate whether the recommendations seem appropriate, and simply put no particular reason to “trust” that the proposed solutions are the right ones.

So what does all this mean? I think it means the reality is that financial planners continue to deliver a written financial plan to their clients because it is one of the only ways they have to validate to clients that the due diligence and analytical work was done in what otherwise is a very “black box” experience for the client – you come in meeting #1 to deliver a bunch of data to the planner, and come back for meeting #2 to see what the black box analytical process spits out as your recommendations. There is little about the process that builds trust or develops buy-in for the clients to the proposed solutions, so clients must grasp for anything that they can to try to evaluate what is being recommended.

One of the few anchor points available? The financial plan document, which serves as a giant “technical appendix” to support and substantiate the recommendations being delivered. It’s not that the client necessarily wants to read through the details of that appendix. But in most situations, there simply is not enough trust built yet in the relationship for the planner to simply deliver a brief set of recommendations, without any other supporting information, and have enough trust from the client to act on those recommendations.

So in the end, it would appear that one of the primary reasons planners continue to deliver written financial plan documents to clients is not for the delivery of information, per se, but because it is part of the trust-building process. Although arguably, it is perhaps not the best way to try to help develop buy-in and trust from clients in the solutions that are developed, as I’ve discussed in the past (also stemming from a conversation with Dr. Lazenby). In a world where the planning process is more interactive as a means to build trust, perhaps the written financial plan becomes less a document to be delivered with the recommendations, and instead becomes even more just a true ‘technical appendix’ – a document that’s delivered after the meeting is over, just to use as a future reference in looking back at the plan, but not part of the actual financial planning meeting at all.

So what do you think? Do you prepare a written financial plan for your clients? Do you think you could be effective in engaging clients to implement your financial planning recommendations if you simply gave them a single piece of paper with a list of recommendations and nothing else? What role does the financial plan document play in your process?

Perception Support director Phil Billingham said: “IFAs owe a duty of care to their clients to look carefully under the bonnet of any potential investment. I would not invest in this fund until I fully understood the investment mechanism, the current asset allocation, how internal valuations are carried out and the situation in terms of liquidity if there are signif ant net outflows.”

I certainly couldn’t have put it better myself. However, I am not convinced, despite this that the IFAs should face any compensation claims, when the real blame lies with the regulator who failed to understand that its rules surrounding mutual funds had been undermined and the ignorance of this displayed by Capita and friends.

The failure is not within any spectrum of reasonable risks arising from advice or investment because it shouldn’t ever have passed muster as an Oeic. The crucial factor is that the rules were stretched to breaking point, something that passed unremarked upon by the ACD and the FSA.

A mutual fund structure is meant to afford certain fundamental protections and maybe the analogy here is along the lines of a fire in a busy theatre when the fire exits have been locked. Arguably there is also regulatory maladministration here too. But the compensation whatever way it is apportioned should have been in full and not have fallen on IFAs, even the rubbish ones, and certainly not on the compensation scheme which means it falls on the blameless IFAs as well.

Should the FSA be worried about Twitter and the retail market? Can you missell or more appropriately mismarket in 140 characters?

I accept you could suggest ‘Here is an interesting mortgage rate’. Sorry but to my mind that’s harmless, useful even.  ‘Here is the latest tranche of a structured product.’ I don’t like those as much but that is because we all know that a ‘buy now while stocks last’ in that area led to some pretty poor outcomes. But does any missell/mismarket apply to the Tweet or to where the Tweet links to?

You must have to take people to a website. Surely that is where any financial promotion breach exists, and where you have room for the warnings and other good stuff to help make sure that it is clear fair and not misleading.

So what about ‘Remember to use up your Isa allowance. Provided you don’t have any debts to pay off. I wouldn’t have invested anything there. In fact I recommend that just like my auntie, you switch out of that and pile into…’ Oops more than 140 characters.

Putting my neck out – not that much because I’m not regulated – I bet you can missell and mismarket on LinkedIn, Facebook, Youtube,  Google +. I don’t think you can missell on Twitter whatever the financial promotions rules say. You can break the rules, but missell? Surely not in any meaningful way.

The FSA should look elsewhere. Paid for search engine terms perhaps?

* if you can come up with a better term that Twisselling, I’d love to hear it.

Also for those interested here is my Fundsnetwork column. I don’t think advisers should be really concerned about direct plays from providers but they should be worried about their client relationships and close business partners as the market changes on the link below.

http://tinyurl.com/3bo5p7g

Have a lovely weekend.

Is you disrespectin’ other IFAs if you haven’t passed your exams on time and ask for a delay?

No. Didn’t think you’d think so. Ok a delay to the RDR would be annoying to everyone who has passed the darn thing. But would a delay be a matter of respect as Roderic Rennison seems to argue at an FA roadshow this week?

Here’s the quote: “I don’t agree with the RDR delay, it is unfair to those who have been preparing for the current deadline. It would be disrespectful for those that are gearing up. There has been so long to prepare that asking for another year is unnecessary.”

Are we talking about trying to get as many advisers over the line as possible or not? We’re not? Well the Money Debate is. And if there are worries about a last ditch big commission firesale then split the two issues.

I would recommend you consider Roderic’s consultancy if you need help or advice on the change. I have heard his presentation and it’s great. But on his main point? Utter balderdash! The blogsite thinks the object of the game is to get as many advisers qualified and over the line as possible.

If that means some get more time, what exactly is at stake from a delay?