In June 2009 the FSA published their “Discussion Paper (CP 09/18)” on the Retail Distribution Review. The document set out the FSA’s proposals for the new distribution landscape which included new definitions to be applied to the delivery of ‘independent advice’, ‘restricted advice’ and ‘simplified advice’ as well as the retention of ‘basic advice’ and ‘execution only’ channels. It also defined a move towards fee based models for financial advisers and a requirement for them to achieve a higher level of professionalism.
Latest blog: 29th July - Can the Retail Distribution Review help restore the savings culture?
For those of us old enough to remember the Industrial Branch (IB) form of business, the ‘Man from the Pru’ was very much part of the fabric of the community. True, they would generally service the blue collar as opposed to the white, but nevertheless the debate between customer and agent was never about the charging structure, or the reduction in yield. It was about why the customer was saving; - to pay off the mortgage, to pay for a wedding, go on a holiday of a lifetime etc.
The culture created by the IB approach meant that a tradition was built up within families to studiously save small amounts to be rewarded, by often handsome payouts, from the insurance company with profit funds. People not only knew their Agent well but they also were familiar with the purchase process. As families were often closer geographically and with this trust in the investment process itself, this led to families putting pressure on new wage earners to save themselves. Also as the IB collector was going to turn up to collect at the front door, this pressure was suitably great enough to make even young people adopt the savings process.
Before anyone gets too nostalgic and starts to blame any number of factors for why it ultimately had to be dismantled and how a generation and more has been lost as culture savers, the truth is that the society we live in is very different to that time. One of the best examples to demonstrate this is that many people were without a current bank account, so they needed someone to physically collect their money or otherwise they had no means of saving. In addition the higher inflationary times usually led to the illusion of better payouts.
To be fair to the our current regulator, they have tried to approach the topic in a number of different ways over the years, trusting that the independent sector and in particular the tied Bancassurance sector would pick up the vacuum left by the demise of the IB agent. To some extent they have achieved this within the most recent versions of the Retail Distribution Review document. Different advice models, such as restricted and simplified are being made available to the developing retail financial services market . These types of advice model support the provision of ‘simpler to understand offerings’ to consumers, encouraging them to buy / assess more financial products. For this reason the role of the retail Bancassurer becomes hugely important. Only they have the capability and scale to deliver large scale provision of simplified advice to support consumers with their financial product choices.
But will the Retail Distribution Review recreate a savings culture?
I suspect that what the Retail Distribution Review will do is make products, and more importantly the purchase process, a lot clearer for the consumer. It will certainly draw more people into recognising the need to do something. But will it replace a culture that once upon a time used to expect its young people to save? That would probably be asking too much of the Retail Distribution Review and its proposals.
The credit culture that many of the last few generations have grown up with has damaged this irrevocably. All the Retail Distribution Review can hope to do is to start making the process of accessing products and services easier, and in that way there is a distant echo of the role of IB agent, where they didn’t discuss the charging structure necessarily, but why the customer needed to save.
Martin McKenna - 29th July 2010