Providers TCF

A letter to Money Marketing:

Hi John,

I was interested to read David Barnett's letter in your 9 November 2006 edition on the FSA requirement for product providers to take more responsibility for the quality of advice.

I agree with him to the extent that the primary responsibility is on the adviser as it is the adviser that deals with the customer.

However there is a heavy secondary responsibility on the product provider to design a product that treats a customer fairly.

It could be argued that there are far too many products in existence whose design is strongly influenced by distribution and marketing costs (i.e. commissions and adviser support) and returns to product provider shareholders. In these cases the interests of the customer come a very poor third.

To illustrate this, it is easy to look at the opposite ends of the spectrum of investment product design.

There are presently a few UK index tracking unit trusts available with NIL initial charge and an annual charge including fund expenses of 0.5% per annum.

These charges make little or no provision for intermediary commissions and the product design could be described as very customer focused.

Compare the above to investment bonds which pay up to 7.5% initial commission and have an array of charges often including initial charge, annual charge, establishment charge, exit penalties etc.

These charges make substantial provision for intermediary commissions and the product design could be described as very intermediary focused.

Whilst I strongly believe advice must be paid for, there is a question over balance, how much should be paid, what represents value for money, the degree to which products should be laden with charges etc.

Kind regards,
Robin Keyte