Ivan Massow is back – but this is not the return one might have expected.
Having been on the Conservative Party's list ofapproved candidates for more than 18 months, Massow, a former flatmate of education secretary Michael Gove, should have been a shoe-in for a crack at the House of Commons.Instead, he is giving up politics and returning to the industry where he made his name.
On Monday, Massow willannounce he has founded a new firm of intermediaries, Massow's. The project follows a search for new opportunities with a similar feel to the company he launched in the nineties to offer financial advice to the gay community, which had suffered at the hands of prejudiced and misinformed financial services companies.
"I like issues-based companies so that is what I have been looking to do for the past couple of years," he says.
Massow finally spotted his opportunity in the Financial Services Authority's retail distribution review (RDR), a shake-up of the way people get financial advice that the regulator is due to introduce at the beginning of the 2013. Crucially, while RDR will mean financial advisers are no longer allowed to receive sales commissions from the providers of products they recommend to clients, the rules won't apply to existing arrangements.
Many savers and investors are aware that when an adviser helps them put money into a financial product – an investment fund or pension plan, for example – the intermediary usually gets a share. This "initial commission" is how the adviser gets paid and is usually a percentage of what is invested.
But what far fewer people know is that advisers thereafter continue to enjoy regular "renewal commission" payments – a new fee taken frominvestors' subsequent contributions, or simply the value of their policies. The fee is meant to cover the cost of the intermediary monitoring theinvestment and providing ongoing advice on whether it remains suitable. In fact, the adviser gets paid even if he never again has contact with his client – very often, accounts paying such fees are even sold on.
Under RDR, all commissions,initial and renewal, will be banned, but advisers will continue to receive renewal fees in payment before 2013. Worse, some are now trying to manipulate the system, Massow said.
"Some are negotiating with product providers to receive lower initial commissions in return for higher renewal commissions, in the knowledge time is running out for these payments," he warns.
This is where Massow hope his new company comes in. Although as many 10m people are payingrenewal commissions to advisers with whom they have no contact, the complexities of financial regulation do not allow them to instruct their product providers to stop the fees. What they can do, however, is change adviser and have the commission redirected. Pick Massow's, he explains, and he will refund 80 per cent of every renewal commission back to the client.
It's a cute trick that could see Massow run into trouble with the financial advice firms whose clients he wants to pinch. But the rewards are worth a bit of bother – with £1.6bn in renewal commissions paid by savers and investors each year, the service promises to be lucrative for both Massow and his clients.
That's assuming he can find some. "The first priority of our advertising campaign is going to be education," Massow said. "Most people simply don't know they're paying these fees – not a single person I've asked knew of their existence."
There are some obvious ironies with the project. Above all, Massow's business exploits a regulatory crackdown on sales commissions, but makes its money from charging commissions of its own. Massow says it "simply wasn't possible" to structure the deal any other way, though he expects to cut the 20 per cent in time – as sales volumes rise, or as rival businesses emerge.
Moreover, though Massow says: "I didn't enjoy my years as an independent financial adviser and I was pleased to be able to get out," this initiative will put him back at the centre of that industry.
While the company won't offer advice of its own, it has had to set up referral arrangements for clients who do want guidance on what to do with the savings and investments they're bringing across. (For what it's worth, he reckons the cost of such advice for the majority of people "is far less than what they're paying in commissions".)
Still, Massow professes himself fed up with party politics, having gone from being a prominent Tory Party member to a spell with Labour, to an independent candidacy for the London mayoralty, and then back to the Conservative all within the space of a decade.
"I am still on the [approved candidate] list but I've never been interviewed for a seat and I can't see it happening," he says. "I'm going back to business, which is what I do best."
Conflicts with rival adviserswon't worry him, having had his fair share of bust-ups in both business and politics over the past 15 years or so (not to mention his spell as chairman of the Institute of Contemporary Arts, which ended after he was publicly dismissive of the merits of modern conceptual art).
Even so, Massow is taking a risk – and not all his business ventures have been successful – by taking on some powerful, vested interests.
His many friends in high places may come in useful.
The FSA's Quiet Revolution
*Launched in 2006, the Financial Services Authority's retail distribution review (RDR) will have been seven years in the making by the time its principles finally come into force at the beginning of 2013 – though even now parts of the financial services industry are lobbying for delays and amendments.
At the heart of RDR lies the FSA's desire to promote high-quality independent financial advice. Advisers counselling clients on savings and investments will have to pass more demanding examinations before being entitled to practice — and crucially, all sales commissions will be banned.
The FSA's argument, one that many consumer groups have been making for years, is that financial advisers, whether consciously or not, tend to recommend the products of companies that pay them the largest commissions, rather than giving advice with the bestinterests of clients in mind. By forcing advisers to charge a fee for their time, the FSA hopes to get rid of commission bias once and for all.
The proposals are controversial,however. Consultant Ernst & Young has produced research suggesting thenumber of independent financial advisers will shrink from 30,000 to 20,000 in the years following RDR. Not all will meet the higher qualification threshold, and not all their customers will be prepared to pay fees.
As an alternative to paying for advice, it is possible more savers and investors will opt to buy the financial products and services offered by their bank, a result which would disappoint personal finance campaigners.Reuse content