Click shows flaws in RDR

Today, Money Marketing report that award winning Click, an online "execution only" protection broker is closing its general insurance arm with a loss of 80 jobs. On the face of it this is no big deal to most of us - obviously sad for the 80 that have lost their jobs. However there is a bigger issue here.

In essence Click provided an option to consumers - to sort out life assurance and loans. All of it without any advice. Marketed oddly as a free of charge service (to find the cheapest providers from a limited range). Frankly I'm surprised that this terminology is really still used. We all know that people don't work for free and that commission pays the bill. Anyway as a firm regulated by the FSA to sell life assurance, critical illness mortgage and income protection they provided an option for the DIY minded and less affluent consumer.

The fact that the company has had to close is concerning. The most obvious point to make is that the numbers were presumably all wrong and perhaps not well managed (I am not privy to the information of Click Financial Ltd, though accounting details would presumably be lodged at Companies House). I admit commenting with such little information is dangerous and I have no intention to harm Click. What occurs to me is that the business was presumably not valued properly - whilst commission may appear to offer significant rewards for sales, the business model and assumptions would seem to have been wrong. A free lunch does cost someone. Utlimately people do not wake up and decide to buy life assurance, its one of those things that needs to be highlighted and explained.

Why am I bothering with this? well in short, with the FSA pressing ahead with RDR, the main thrust of which is to provide fee-based advice which means that the "best advisers" (remaining) will be charging fees, the rest will either have to leave the industry of offer a service similar to that of Click. The main reason that most advisers are struggling to adapt to RDR requirements is failing to know how and what to charge. If you have been telling people that your service is free it is pretty difficult to place a price of free other than £0.

Advisers need to quickly get a good understanding of how much the work that they do is worth. (as do their clients). This will presumably have some relation to complexity, time, experience and the amounts involved. This is not normal territory for many of them, for a significant number (I hope not most) their business is response driven - something arrives by post or email and the adviser responds. The classic squeeky wheel gets the oil. This has nothing to do with service.

The closure of Click ought to be a warning to the FSA that the most obvious unintended consequence of RDR is that most people will be left to get advice from a Bank where there seems little real service proposition, more of a "buy as I think of it" approach. Banks provide statements and marketing leaftlets and little else (yes even the Gold card "services" are plainly hapless). The one advantage is that Banks are easier to regulate and fine (assuming that they don't become insolvent) which would make life easier for the FSA - who have an unenviable job policing the system.

As someone that has operated on a proper fee system since forming my company in 1999 you would be forgiven for thinking that I believe that fees is the only way. I don't and it isn't. The issue is that people get good advice and that this is not swayed by a system that creates bias in the advice (different commission for different products from different companies). Many people cannot afford fees for even a basic level of service, yet invariably these are the people that most need good financial counsel - to help them become financially independent of the State.

RDR must be re-thought otherwise we are creating a rod for our own back where those without get even less and rely on the State even more and it would appear that these sums are not sustainable. Much like a business model that doesn't work because the number are wrong.