Marketing madness and at what a cost

The marketing of financial services products via television, online and radio must be one of the very best examples of regulation gone mad that one could find.

In 2014, financial services accounted for 20% of all advertising spend at £158m, with price comparison site moneysupermarket.com the leading individual spender.

Research by eMarketer forecasts that in 2015, mobile will overtake all of print, including both newspaper and magazines; in 2016 it will overtake television; and in 2017 mobile will become the single biggest ad channel in the UK market.

And yet the biggest failing of all these ads is that no matter how much money is put into the position of the ad or making it appealing, the small print significantly dampens the impact.

The FCA has guidance on the subject of financial services advertising and there is a lot of good sense in it.

The FCA state that “Warnings should be right for the product, the medium, the audience and the content of the promotion. Irrelevant or inappropriate warnings may only discourage or confuse consumers for no useful reason and will result in the advert being unclear”.

However, it still seems that striking a balance between providing relevant information in a compliant way is proving confusing.

The next time you actually listen to or view advert please do so carefully.

That garbled message running at the end of so many does the very thing that the FCA advise against. Or, try and read the small print on the final frame of a banner ad and see just how useful it proves to be?

Is financial services advertising regulation simply there to tick a compliance box? What do you think are good examples of financial services ads out there, let us know?

Fees, its about the Money Money Money

Ms Jessie J may be a singer and not a regulator but she was correct singing, “It ain’t about the ch-ch-ching ch-ching, it ain’t about the bl-bling-bl-bling, it’s about the money money money.

A recent article in Money Marketing by Robert Reid stirred up a bit of a hornets nest making me reflect upon some of the wisdom imparted in July 2013, by the recently resigned FCA boss, Martin Wheatley.

He was quoted as saying:

“In some cases, firms are charging a percentage of product investment, and clearly it takes away product bias in the sense that we are no longer seeing firms recommending particular products because of the payment that comes to them, but it does not take away ‘dealing bias’, because if you only get paid if people buy a product, then you are going to want them to buy a product rather than pay off debts or do something else.

There are some concerns about whether that is entirely compliant with the philosophy we have set out, and it is something we will come back to.” 

There was considerable anti-Wheatley adviser anger expressed within the Internet ‘ether’ but for once, speaking as a very staunch defender of advisers, I think they may have not focused on the real metrics behind his words and given the reaction to Robert Reids tome, I still think Martin Wheatley actually had a point and advisers should really take notice of them before it is too late as adviser charging of fees as percentages through the product could well manifest itself in a soon to be named miss-adviser charging crisis if Canary Wharf has it’s way.

Advisers should not be afraid of making profit or seeing great inflows of income, after all they have to fund the regulatory cash outflow somehow.

But adviser charging by percentages of funds under management rather than time taken was always going to be sailing a little close to the regulatory wind in a fee only world. And yes, this thought may not go down too well out there, but it is a fact.

Adviser intentions from Panacea winter 2012/13 research carried out with GfK indicated that some 72% of advisers would levy their charges via the product, and astonishingly, a significant number would not use providers who did not allow this facility- product bias?

Results from that very detailed GfK research conducted with over 400 advisers has indicated that post RDR, most advisers are charging fees to the fund.

A leaning toward an initial fee of 3% of funds invested and 1% for ongoing advice per annum across a wide array of segmented servicing models seems to be their stated norm although provider feedback would suggest a lower figure is more the reality, 1-1.5% as an initial fee and .25% to .5% ongoing.

Should we be surprised that the upper percentage of initial adviser fee quoted for a lump sum investment today is very similar to single premium pre RDR basic LAUTRO commission payment, around 3% I seem to recall?

If Frank Carson was an IFA he may say, “it’s the way I tell ‘em”.

But, let’s look at how the FCA may choose to look at this issue, advisers should take note, with the benefit of foresight on this occasion.

Based upon that GfK research, a proposed investment of £250,000 would see the advice fee set at £7,500. But what would the picture be if the FCA asked that the fee be justified based upon an hourly rate?

Of course time taken does not have any formula to accurately indicate an actual duration as every client is different, but given that the average (GfK survey confirmed hourly rate) charged by advisers was £167, the ‘math’ would imply that by comparison the advice on a time basis for a £250k invested amount equated to 44.9 hours.

I am not an adviser any more, but with so much technology resource available today, taking over a working week seems a lot of time to justify for one client? The FCA view may be similar?

For an investment of £100,000, the fee would be £3,000, and a time basis reflection of 17.96 hours. Yet the time taken to fact-find, research, report and execute a transaction or series of them may be less than for an investment of £250k.

Or more?

The FCA will take a view that the RDR was not about professionalism by way of qualifications providing the ability to see adviser payment by a rebrand of commission. It is about reflecting professionalism by charging in the same way as other ‘professions’ (if profession creation was one of the intended RDR outcomes) and that is by charging purely on units of time.

The actual calculation formula of fee payment, either direct from the client or from the fund is not too relevant.

But should it be based on time? And should it be linked to a transaction?

After all, the logical conclusion is no transaction after advice given equals no fee- as Wheatley implies, yet the time taken is almost the same, a service has been rendered and payment is due? Or is this a disguised advice cross subsidy?

So, how would advisers explain to the FCA that the following* is ‘TCF’ in a fee based, advice driven, post RDR world when charging advice to the fund?

Scenario 1: Advice charged to fund at 3% plus an ongoing 1% per annum, £7,500 (provider charges are on top):

Male 40 attained pays £200,000 as an SP pension contribution, it is grossed up to £250,000.The fund at age 65 and assuming a return of 4.9% would be £1.40m.

Scenario 2: Advice paid direct by the client on an ‘average’ hourly rate  £7,500 provider charges are on top:

Male 40 attained pays £200,000 as an SP pension contribution, it is grossed up to £250,000.The fund at age 65 and assuming a return of 4.9% would be £1.85m

*Research data provided by a leading life office 26th July 2013, assumptions are an extreme!

So over a 25-year term, the eventual real cost to the client of initial and ongoing advice for this single premium contribution when charged to the fund would be a staggering £450,000 less of course the impact of adviser charge hourly billings.

If the client was charged on time, the hourly rate would be??????? Well you work it out on your own hourly rate!

It would be interesting to see a comparison of time based charging v percentage when levied to the contract over the term of the contract.

But I believe that what Martin Wheatley was actually saying is that the FCA ‘thinkings’, unlike the FSA, would indicate that basing charging on percentages of FUM, both initial and recurring, is not right.

Where I did take issue with Mr. Wheatley is that in 2013, after many years of progress toward an RDR world (where the FSA, as was, agreed with the concept and amounts involved when charging a percentage of funds under management to the contract) he was sending strong signals that the FCA did not see it ‘appropriate’ that this previously agreed level and type of charging should continue. The suggestion being that advisers should prepare to hear that stable door slam soon despite very many adviser post RDR businesses being based on this charging methodology.

The more cynical conspiracy theorists among us may have very strong suspicions that the FCA was wanting to find yet another way to get rid of advisers by making it impossible for them to remain in business as the imposed income reducing possibilities of RDR cannot ever match the increasing and varied calls of cash from the regulator, FSCS and the FOS.

In fact the only way advisers can remain in business with such a proposed ‘chocking off’ of income flow is that there is a similar ratio reduction in regulatory fees, by that I mean those of the FCA, FOS and FSCS.

After all, consumers could see much lower advice costs if firms did not have to ensure they are treading dangerous and deep fiscal water just to see survival in the face of the huge costs that regulation forces upon them.

And where is the consumer in all this? Research continues to show that there is a significant reality gap between what advisers think consumers will pay for advice and what consumers would actually pay.

Not a good ‘outcome’ as they say, if advice for all, but at a cost, was the intention.

banks, will they ever learn?

In the Fools & Horses 1981 Christmas episode Del observes I’ve heard your line of patter my son. If they don’t know Adam Ant’s birthday or the Chelsea result it’s goodnight Vienna, innit”?

The PPI scandal has demonstrated the creative thinking around product design by various financial institutions and for that particular product, almost everyone has now said their goodnights.

It has seen PPI fines in the four years up to 2014 hitting some £42bn and in April this year word was out that the UK big four could be getting hit for another £19bn over the next 2 years.

Although banking sector PPI compensation payouts have been decreasing, what is of concern is that hybrids or variants of the same type of product are still being marketed.

The latest postal example hit my wife’s in-tray this week in the form of a letter from Nationwide introducing her to their super fantastic FlexPlus current account.

The account’s big selling point is in the form of a selection of non-negotiable ‘superb benefits’ such as Defaqto rated motor breakdown insurance, mobile phone insurance and world wide travel insurance.

There are a number of other benefits but of the 8 on show, 5 are insurance products.

And all for £10pm.

Nationwide’s web page reads: “FlexPlus gives you more than just interest. Choose FlexPlus for great banking features as well as a range of insurance policies and account benefits for you and your family. All for £10 a month.

Exclusions and limitations apply, so please read all the insurance policies and benefit details carefully”.

I can see nowhere on their website or in the letter to my wife a very simple statement along the lines of ‘before taking advantage of this “never been easier to switch offer” do check if you already have this type of cover elsewhere’?

Much of what is being offered could already be in place elsewhere, like via home and contents insurance, other bank accounts or credit cards and therefore being paid for twice, leading to consumer complication and confusion when submitting a claim. And of course more compensation claims.

Again I draw on Delboy’s wise words There’s gotta be a way! He who dares wins! There’s a million quids worth of gold out there – our gold. We can’t just say ‘bonjour’ to it”.

And that is the problem, banks cannot help themselves it seems. Why do bank accounts have to come with insurance as a way to attract customers? Surely some simple, reliable, old fashioned service could do the trick at much lower cost?

Coulda, woulda, shoulda? At last an Ombudsman refuses to apply rules retrospectively

A breath of fresh summer air blew through the world of ‘Ombudsmanning’ when the Pension ombudsman Tony King recently made a ruling in relation to a pension ‘liberation’ claim where a transfer was requested one month before the Pensions Regulator issued guidance to providers about such cases.

When making his decision he said, “I cannot apply current levels of knowledge and understanding of pension liberation/scams or present standards of practice to a past situation.”

This decision should set a precedent and if followed by the FOS would remove the need for any longstop campaigns to continue.

This is the very bedrock of reasoned decision making where previous regulation and FOS considerations have fallen well short.

The FOS practice of applying a kind of ‘coulda, woulda, shoulda’ to decision making, often failing to give reasoned consideration to previous ombudsman’s rules in the adjudication process, will have seen many good businesses closed, liabilities parked with the FSCS and the resulting need to increase and apply one off unexpected unbudgeted levies placing unfair burdens on the firms left.

The decision from Mr King is simply one of fairness and common sense.

But is anyone listening at the FOS, over to you Ms Wayman?

We’re in the money, are you paid enough?

You may have seen that BWD have recently released their Salary and Benefit Census and I am delighted to offer you a complimentary personal copy of the 2014/2015 report to download. 

It will be of interest to Financial Advisers, Planners, Paraplanners, Broker Consultants, Employee Benefit Consultants, Administrators and Compliance Specialists.

Now in its third year, it is established as a definitive reference source for salaries and benefits in UK financial services. The three sample points span pre and post RDR and so act as a valuable analysis of the impact of this pivotal piece of regulation, whilst also showing how the sector is reshaping itself for the future.

I hope you find the report useful. Our thanks go to BWD for making this available.

Any comments or questions you may have, please contact James Walker at BWD Search and Selection by e mail: james@bwd-search.co.uk