February 2008

To give advice, or not

Dear Editor,

The RDR is an excellent opportunity to create a totally transparent market place for consumers but without care it could prove to be a disaster. In responding to the FSA's consultation document some organisations have outlined proposals for various forms of guided sales or assisted purchase. Our view is that this will introduce complexity to the market and will ultimately fail.

Instead, distribution in the retail financial market should be polarised into just two categories - advice and no advice - to bring clarity to the market. This will give consumers keen for some form of help a simple and clear choice of how to access appropriate financial solutions.

We support the FSA's recent view that the proposals as they currently stand need to be simplified. In our response to the RDR, among other points, we have outlined five key areas that must be addressed in order for distribution to be understood by consumers.

1. Any attempt to blur the distinction between advice and no advice by creating sub categories, such as guided sales or assisted purchase by primary or generic advisers, must be avoided.

2. In the advice channel, those providing advice should take responsibility for that advice and consumers should be protected by the Financial Services Compensation Scheme (FSCS), which covers unsuitable advice. A compensation scheme should not be available in the no advice channel although all consumers should continue to be protected from misrepresentation of the product.

3. The no advice channel should follow a prescriptive process, giving a structure to the market and ensuring consistency for the consumer. This should include taking the customer through a 'financial information decision tree' to decide whether they need advice.

4. Products distributed through the no advice channel should have an investment limit of £3,600 a year and clear risk warnings must be provided about the possible detrimental position for the consumer of not seeking advice.

5. The term 'independent' must be restricted to the advice channel where advisers must select products from the whole of the market and hence the advice and the product selection will be independent.

Anything in between advice and no advice will only add to current confusion which is unacceptable. Concepts involving 'reduced' or 'limited' suitability or grouping consumers into broad categories while not providing the protection of a compensation scheme could in due course serve to destroy confidence in our industry.

Billy Mackay
Head of Marketing
Skandia Life