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Head to head: Should the FSA allow grandfathering?

Following Treasury select committee member Mark Garnier’s interview in last week’s Money Marketing, two leading financial services industry figures put their cases over whether the FSA should allow RDR grandfathering for experienced advisers.

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’Recognise the high quality of advice already being given’

Ken Davy
Chairman, SimplyBiz

When a highly respected member of the Treasury select committee, Mark Garnier, brands the proposed qualification requirements for existing advisers as “outrageous”, I believe all of us, including the FSA need to pay careful attention.

I applaud those advisers who are already diploma-qualified and chartered and I am sure their designations will help enhance their business but for those who are not there yet, we should have a more pragmatic transition.

By increasing the focus on alternative assessments and removing the cliff-edge date, we can adopt a more sensible approach to raising qualifications while at the same time continuing to service the clients who need and want high quality financial advice from trusted professionals.

I have campaigned for greater professionalism for years but what we find ourselves in now, under the current proposals, is a ridiculous situation where thousands of high quality advisers with good professional standing are threatened with expulsion after 2012 for no good reason.

The idea that up to three million clients, most of whom will be elderly, would be denied access to their trusted adviser, who they may have been served by for 10 to 20 years is completely wrong and against the regulator’s aim of increasing access to financial advice for consumers and treating customers fairly.

What we need is a pragmatic approach to higher qualifications and not a date that will symbolise rejection from the profession for a considerable number of advisers.

We should recognise the high quality of advice that is already being given by the sector and the high level of consumer satisfaction, as shown by the Financial Ombudsman Service figures.

The article received a tremendous level of support from the Money Marketing audience, the majority applauding the common-sense approach outlined by Garnier.

The large number of comments in response to the story appreciated not the damning of the increase in qualification but the lack of flexibility and the steely attitude to any who may not make the deadline when it comes to passing their exams.

Financial advice seems to be a profession on its own when it comes to grandfathering – it was allowed in the nursing profession – one professional has the consumers’ heart in its hands and the other its financial future, not altogether different in my mind.

Moving on to the question of commission and the banning of this structure under the RDR, I find it counter-productive to advisers and consumers and a step back from where we are today.

Since 1991, consumers have had the option to pay by (pure) fees and most still continue to pay for advice by commission or fee offset (commission). Surely, giving consumers the choice on how they pay is more in line with treating customers fairly than dictating that they must pay by a fee.

I believe that what consumers want from our profession is greater transparency and a simple way to assess product charges and remuneration. They want to know in simple terms how much the product costs and how much the advice costs, they do not want to have their options removed. Surely the “big society” is not about removing consumer choice.

The cost of the introduction of adviser-charging to product providers has also been grossly underestimated. Indeed, the most likely result will be a further reduction in product availability and client choice. In addition, it risks creating provider bias brought about by systems’ capability rather than quality of product.

We have seen no evidence either from the FSA or elsewhere that justifies these costs, nor has any evidence of substance been produced to warrant the risk to consumers that these outcomes create.

We believe that the FSA’s objectives in this regard, as far as they can be ascertained, can be met at minimal cost through increased transparency.

As they have at present, it is the client’s absolute right to have the choice as to how the advisers are remunerated.

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’Delivering advice is not same today as it was a generation ago’

Martin Bamford
Chartered financial planner, Informed Choice

It was interesting to read the comments from Treasury select committee member Mark Garnier, who has called on the FSA to allow grandfathering.

I understand and appreciate the apparent groundswell of support for this grandfathering option but the bottom line here is that many advisers have been ignoring the inevitable.

For whatever reason, they have avoided doing what is required to meet the new standards and have instead chosen to wait for an alternative solution to emerge.

Higher professional qualification standards form a core part of the RDR for a good reason. Delivering advice in a regulated environment is not the same today as it was a generation ago. This is partially the result of changing regulation but mainly due to the increasingly complex financial world in which we operate.

A set of benchmark qualifications from the 1980s no longer sufficiently demonstrates competence when it comes to the technicalities of advising today.

Yes, experience counts, assuming, of course, it is relevant experience. In fact, the combination of this relevant experience and relevant qualifications is what makes for a well rounded and, dare I say it, professional adviser.

To argue that clients do not demand their advisers hold these new benchmark qualifications is not the point. If clients understood what was at stake, their opinions on the matter would differ.

We know from experience that clients actively seek out advisers with higher-level professional qualifications, as part of a bundle of requirements they look for when selecting a new adviser.

To claim that these new requirements have been thrust upon the adviser community with insufficient time to complete them is also wrong.

The regulator has been consistent in its call for an improvement to the previous minimum qualification benchmark for as long as I can remember. I have heard the avoidance of facing up to the RDR challenge by some advisers described as “watching a train crash in slow motion”. Our profession has been on these tracks for a decade or more. Save some divine intervention, this result was always on the cards.

Waiting for divine intervention makes for a lousy business plan.

The comparison that Mr Garnier makes in his comments to the qualifications held by people at the FSA adds nothing to the debate. The FSA, and the individuals it employs, do a very different job to financial advisers. They do not deliver financial advice to individuals as we do. A very different skill set and qualifications to support this are needed.

I completely empathise with advisers who find themselves in the very unpleasant position of having to pass exams in a defined period of time to continue with their careers. Exams can be tough to pass, particularly when you put yourself under unnecessary pressure to pass them quickly. Advisers with lots of experience in their chosen business areas should have no issues with the technical knowledge required. It is more likely to be finding time for study and honing examination technique that will pose challenges.

For advisers who have left it too late or made the decision not to rise to the challenge, there are alternatives to consider.

Talk of a mass exodus of advisers at the end of 2012 has been done to death. I suspect, in practice, many will continue in some form or another, rather than retiring or changing careers.

Like all advisers who have already obtained a QCF level four qualification, I still face a couple of years of gap-filling through structured CPD and possibly more exams. This learning game and demonstrating competence through qualifications is a lifelong activity. We all do CPD each year to keep up to date but this has never been particularly well structured when compared with other professions.

If we collectively accept the option of grandfathering, it would be hugely damaging to our profession. Clients are already wising up to the benefits of a future where their financial adviser needs to be better qualified and operate on a more transparent remuneration basis.

This is an opportunity for all advisers to do something useful towards restoring consumer confidence and trust in what we do for them. It would be a shame to fall so close to the final hurdle when a result like that is at stake.

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Comments

There are 48 comments at the moment, we would love to hear your opinion too.

  1. If the adviser sector had stood as one and offered a home cooked solution the regulators would have listened and given it a chance.

    The fact that the likes of Ken and Martin have their own agenda and refuse point blank to accept that you are all in the same boat is the reason why the loudest voices get heard, simply because they have the money (CII etc).

    It is frustrating to watch but I am glad I am not regulated, I bet ken is too.

  2. I agree with Martin entirely. I would add that these advisers who have done nothing (literally) to increase their level of qualifications during the several years that knowledge of this requirement has been in our industry deserve what is coming to them.

    They will now have to work even harder (and moan about it even more loudly) to achieve the benchmark and it will be no loss to the industry if they give up. Their clients will be snapped up by those of us that remain authorised and qualified and will be better served as a result.

    Frankly I am sick of this argument. Accept that you need to have more than a GCSE in basic advice to take £000s in implicit commissions from HNW clients (or Mr and Mrs Average for that matter), man up to the challenge and do what your industry requires of you.

    We will all benefit as a result.

  3. I don’t want to be operated on by a doctor who’s learning what to do by making mistakes on the job. I want one who comes trained, with evidence of such, and who has a good reputation.

    Similar goes for IFAs. Get trained. If your “experience” is as good as you say it is, you’ll sail through the exams. After all – the exam is just another client situation, right?

  4. Ken Davy is a neanderthal in today’s industry, a King Canute,one who believes he can push against the tide…that the status quo is where we should be. The advisory marketplace is a hugely different landscape from where it was 20 years ago and advisers need to reflect that change in the level of technical expertise that they have at their disposal.
    Ken will no doubt argue that years and years of experience should (pre) qualify an individual for the post RDR world. But how is an adviser to know if all that experience is good experience as opposed to ‘bad’ unless he has the technical knowledge to back it up. Poor knowledge and bad experience is the worst of both worlds.And just because someone has been in the market for ever and a day does not make them any good…
    And likening an adviser to a nurse is a nonsense….it is the doctor (adviser) that carries the responsibility and is a more appropriate analogy. Perhaps next time Ken is feeling unwell he would choose to see a doctor of Podiatry, one with 20 years experience. After all he is seeing a doctor, might not do him any good for the vast majority of ailments but at least he has seen a doctor. Might help him if he has an ingrowing toe-nail or bunions but not much else.
    The advice business is all about what sits between an advisers ears and unless individuals are prepared to invest time, effort and money in the best piece of kit they have then they shouldn’t be in the industry. How do you know what you have ‘learnt’ has gone in…by getting the pass certificate of course. No other industry would expect anything less.
    As for his continuing advocacy of commission. It just beggars belief that he thinks a third party should determine what a piece of advice is worth not the client/ advisor by prior agreement, unbelievable.
    Ken Davy is doing the industry a huge disservice by advocating grandfathering of advisers and retention of commission. I often think this sort of attitude is driven by either Ken wanting to protect the interests of some of his ‘mates’ or the need to keep SimplyBiz a viable business to sell in a few years time.
    Ken Davy is a behemoth in the industry, he should use his influence more wisely for the future of the industry not the past

  5. oh the siren voices of those already qualified!! Look at me I’m so clever and the rest of you are useless!!

  6. This is an argument which is dead and buried and everyone just needs to get on with it. If you have the experience then this should help you in your exams. Prove that you have such by passing them.

    As an older advisor with 28 years experience and one who does not particularly like sitting exams, grandfathering is both time consuming and to open to interpretation by those who are performing such.

    The only issue I have is with the array of exams and the monopoly which seems to be held by the CII. Secondly where can you get some additional study as the insurance companies such as NPI Scottish Widows etc were the places we used to rely on when doing such exams as G60 etc. Ideas please!

  7. It tickles me that the Advisor community have shut their eyes to the clear and obvious. The prime reason for this exam rush and fee only agenda – is aimed solely at devastating the numbers of Independent Advisors in the UK and leaving the Financial Institutions with a captive audience. Everybody with any sense must, (by now), realise that the FSA is just a union for these same institutions. Did I mention dual pricing?……..

  8. The CII and the FSA are being entirely unfair and unreasonable. I have my Diploma axam and have done it early in anticiaption of RDR. Now however we’re being told that thisi isn’t enough, we have to “Gap Fill”. I’ve done G60 and I’ll have to “Gap Fill” on pensions, I’ve done G10 and I’ll have to “Gap Fill”. I’ve also done SVI and SI exams and I’ll have to “Gap Fill” on investments. But the CII won’t tell me for sure, because I’m not a member. Others have told me based on their experience. Anyone who has done the old Diploma or AFPC might as well have not bothered, the CPD requirements are so vague and will probably be so honerous that it will be easier to do the new R0 exams. Yes – bring in Grandfathering for people who have the old Diploma or AFPC at least. What about the “No Regrets” policy from the FSA?

  9. It’s not that anonymous, it is just that they have time to write long blogs as they have the time due to having no clients to see or being in an cosy little office with a nice employed package…………. The pictures sum it up for me……….. Ken, a mature and professional looking guy in a suit and tie and then Nick, all open necked and casual……………….

  10. Steven Farrall (Adviser Alliance) 15th October 2010 at 1:21 pm

    ‘Trained’? Who the Hell wants to be ‘trained’? Do clientt’s wnt you be trained on them, like a gun? What is needed is education, which is a Helluvalot different from training.

    The two factions in this argument are both missing the point. The point is that RDR is just another way in which the FSA can justify its existence.

    Martin also says “This is partially the result of changing regulation but mainly due to the increasingly complex financial world in which we operate.”. Erm, no. Complexity is the result of an overweening bureaucracy, in the vanguard of which is the FSA and its ludicrous rules. Financial planning is essentially very simple, and keeping things simple is best for clients. The solution to this overcomplexity is not more ‘training’ for IFA’s but to repeal all the complex rules and regulations and especially Brown’s Bizarre Tax system.

  11. Hear hear anonymous. Let’s see how the Westminster Debate goes next week.

  12. .
    I am completely fed up listening to advisers outlining they know their stuff.
    If they just spent more time revising than moaning they will get through them.
    I have noticed the moaners are the ones you would probably pin point as the ones that will struggle to get through the exams. Why, well we all know, they think they know it but simply do not.
    I have noticed the advisers that bash on and pass them arethe ones you would feel compfortable with.
    I have always used a statement. How many advisers do you know you would trust to deal with your family’s finances if you were not here. I would recommend the passers not the moaners. I rest my case!!!

  13. Raymond Woodruff 15th October 2010 at 1:36 pm

    As one with 35 years experience in the business I also feel less inclined to take more exams. However the rules have been set and I know that come 2013, without the necessary qualifications I will not have the choice to carry on. For those of us with long service we surely do not want to give it up. We are still in a fantastic industry with huge potential for those who stick to it and get these exams out of the way. I’m half way through RO1 and can tell you it isnt that bad.

  14. Where is the body of evidence ~ indeed, any evidence at all ~ confirming the FSA’s presumption that experienced advisers with only basic levels of qualifications are providing Mr & Mrs Average (as opposed to Mr & Mrs HNW) with anything less than entirely satisfactory levels of advice? I suggest there is none.

    Funny, isn’t it, that the FSA has steered clear of spending tens of thousands of pounds commissioning a report to confirm this presumption.

    The complaints data suggests there to be no connection between only basic levels of qualification allied to experience and poor standards of advice and service.

    Most GP IFA’s advise on relatively straightforward matters such as life insurance for mortgage or family protection, funding for retirement, investing in ISA’s, Unit Trusts & the occasional Investment Bond, marshalling an assortment of pension funds (usually less than £50,000 and virtually never in excess of £100,000) for the provision of an income in retirement. Some of us advise as well on IHT mitigation strategies, most commonly (though not exclusively) by way of investments in Trust or joint life second death WoL.

    We don”t advise on million pound pension funds, complex lifestyle strategies, exotic investments and all that sort of stuff. If we were doing a poor job, our clients would be raising complaints against us and/or taking their affairs elsewhere ~ possibly though by no means necessarily to a fee based advisory practice. As the many owners of small and long-established clean businesses will attest, those things simply aren’t happening. Where’s the evidence that they might be? There isn’t any.

    So what’s broken that’s in such desperate need of fixing by forcing all advisers to plough through loads of exams, much of which are irrelevant to what they actually do week in, week out?

    If clients want to go to a HNW specialist and pay hefty fees, they’re free to do so. The vast majority of clients are not HNW and don’t want to pay hefty fees. Far too many still go to their local bank and get “free” advice that ends up with the sale of a high commission, poor-value onshore Life Assurance Investment Bond. That’s where the real problems lie, not with experienced advisers who hold relatively basic levels of written qualifications.

    Forcing good experienced advisers to spend hundreds of hours and thousands of pounds to get a few more letters after their name and a few fancy certificates to stick on the walls of their offices isn’t going to change that.

    Well done the Bamford Brothers for getting well qualified and for building a business based on clients in affluent stock-broker belt Surrey who are happy to pay fees. But please stop lecturing the rest of us to the effect that we should all be following your business model. Live and let live.

  15. The highly qualified (naturally) Martin Bamforth is quoted as saying

    “We know from experience that clients actively seek out advisers with higher-level professional qualifications, as part of a bundle of requirements they look for when selecting a new adviser”.

    Why are these people seeking new advisers in any case, do they get up one morning and say, well Im going to dump my trusted IFA of 20 plus years who has served me well throughout my career and Im gonna find one with some more letters after his name, dont think so fella.

    Its never happened to me, or any of my peers in over 25 years in the industry.

    If you have the proof publish it, but I think its another piece of posturing from the academic brigade.

    Dont forget, the bulk of the “unqualified” did achieve the required qualification of the day ALIA (DIP) etc etc which was simply eradicated by the new benchmarks.

    Lets see how you fare when 25 years down the line the powers to be simply decide to quash your chartered planner status and force you down another road in your late 50s.

    Exams are easy in your 20s, 30s & 40s but very taxing in later life.

    I cant store as much information as before, but experience has taught me where to locate it and when – same conclusion just a different method.

  16. Just a few points to make;

    Eric- it’s Martin not Nick as per the caption next to his photo (and by the way no one ever bought me for my looks tie or no tie!!)

    Julian- Martin is my son not my brother

    Anonymous 1.39- the spelling is Bamford not Bamforth

    I think we can safely say that the IFA community is made up of two types change adopters who will thrive and prosper post RDR and change resistors who will not. Put more simply for the hard of understanding Winners or Losers. You choose.

    The choice is clear

  17. Perfectly put Julian Stevens. Other than the legality, I cannot add anything more other than the to say that even the majority of pro RDR advisers do not advise on complex issues either any more than a GP does brain surgery. I am not aware of any clients in any representative numbers searching out advisers according to exam results. That is simply a red herring. To be honest I would not refer anyone to a level 4 adviser for specialist advice on for example a complicated trust when I know someone who is experienced and only deals with trusts anymore than I would expect a GP to carry out surgery.

    You are right to make the point about the evidence for any of this – it simply does not exist. I for one think that CPD (as in other trades and professions) coupled with the permission system currently in place adequately deals with the issue of advising about matters for which you are supposedly qualified and for which regulatory permission you have the relevant exam pass.

    This pro exam/RDR thing is so short sighted its the thin end of a wedge and as others have put it a ‘sledge hammer to miss a nut’

  18. To those who argue the case I would like to make 2 points:

    (1) Passing Q level 4 exams will in no way make you qualified in any academic or professional sense – which is just as well as

    (2) 95% of all Financial Services advice is not really all that complicated.

    These exams are being required for entirely political reasons. A quick look at some of the papers shows just how difficult it has been to come up with relevant questions.

    Set up some proper degree level programs for all future entrants that want to give complex advice and you would have my support.

    But please get real. Don’t think that these jam label qualifications are the answer. They are inadequate for those who give complex advice and totally unnecessary for the majority who advise on or sell simple products.

  19. This entire argument stems from the spoutings of Callum McCarthy, yes, he of “the model is broken” infamy.

    We all know that the bancassurer model is broken in terms of consumer detriment although it is succesful in terms of vast profits.

    The various complaints statistics confirm this and completely nail the lie that consumers mistrust IFAs. The two consumer surveys carried out on behalf of the FSA and the ABI by Charles River Associates also found little product or provider bias and stated that the matter was one of perception as opposed to reality.

    The point is, the adviser community generally interacts well with consumers and trust is not an issue.

    CPD and focused learning is used by every other profesisonal body and serves them well. They do not institute restrospective qualifications and they respect the depth of experience that long-standing practitioners have built up.

    By all means raise the bar and insist on new entrants demonstrating level 4, 5 or 6 knowledge, you will find little argument with that.

    This country needs all the adviser it can get. We are down to 27,000 from the 200,000 + who roamed around twenty years back. It is no coincidence that the various gaps have widened.

    Reality is always more useful than theory or fantasy and the FSA, Mark Hoban and parliament needs to understand that there is no problem to be solved but that the measures designed for good reasons will inflict misery and as per usual confer unsatsfactory outcomes on UK plc.

  20. To Martin Bamford

    1.Who’s ignoring the inevitable?
    2.I haven’t noticed any change in giving advice over the last twenty years, except for having to prove I followed the correct procedures
    3.My basic qualifications did not come as far back as the 1980’s
    4.None of my clients have ditched my services to find an ifa with more letters after their name
    5.Why is the RDR useful towards restoring customer confidence? I don’t know anyone who has even heard of it. Less IFAs means more direct sales means more mis-selling
    6.Dress more professionally. It’s a well known fact that the public are getting wise to advisers who lounge around in open necked casual shirts and trainers

    To Benjamin

    1.I, like most other IFAs, have not done nothing to improve their qualifications to give advice. I just haven’t bothered getting a piece of paper for it because I don’t like to ponce around
    2.If you are sick of this argument then man up and stay out of it. Do your poxy exams, sit back and relax looking smug

    To Lee D

    I did a mock R01 exam the other day, without any study, and a high percentage of the questions are not client situations, as you should well know if you are engaging in this debate. I failed by about 2 or 3 questions so I don’t doubt my ability to take the exams. I just don’t believe we should have to

    To Philip Stevenson

    You are just rude

    To Bob Donaldson

    Fine Bob, you can take the exams if you want but why just let people push us around without arguing our right to work? Where do you draw the line?

    By the way, most of the comments seem to be about the bloody exams so am I to understand that most people agree with Ken Davy about not taking the client’s right of choice to pay by commission or fees is sensible (which it is)?

  21. I am a Certified Financial Planner of a certain age. For all you arrogant, young,not-so-young, dynamic, hard headed, diploma holders out there you have to have the diploma before you can even attempt the cfp exam.

    I am completely in favour of grandfathering and cpd since otherwise we are going to lose numerous first class IFAs who have been doing the job well for many years and do not need any further specialist knowledge beyond that gleaned from cpd because they do not operate in appropriate areas.

    Two simple truths:

    i) The FSA has a right and indeed a duty to act on incompetent or untrustworthy advisers; it has no right or mandate to rid the profession of good,capable advisers and you do not need a string of letters to be one of those
    ii) Those of you who have the good name and professionalism of the industry at heart (it says here) can get your qualifications and only employ and work with those who also have them; or insist on new employee advisers obtaining them. Then you can broadcast your vast superiority across the heavens. You must be unconvinced of your own case if you are content to sit back and let the FSA do the dirty work for you

  22. Alan is right in that the debate is a direct result of the “broken model” theory. RDR may or may not have robust roots but it is going to happen and the outcome may not be what was expected the “law of unintended consequences” may well be evidenced yet again.

    But something needs to change because the current model is not as perfect as the resistors believe it to be.

    ABI analysis shows the average cost to the consumer of the advice they receive about one of the simple products that Julian describes is a staggering £670.

    Now I understand the argument that a good deal of that cost might be attributable to the regulatory environment in which we operate but not all of it by any means.

    Despite the good behaviour of the many disclosure is still resisted by many and the almost fraudulent suggestion that commission is somehow a “no cost” way of getting advice is still fairly endemic in the IFA sector.

    The solution in my view is that the FSA should have introduced a form of polarisation, that of Independent Financial Sales with a bundled advice/product/commission remuneration for “simple” products with current level qualifications and an Independent Financial Advice sector with unbundled advice/adviser charging and highly qualified advisers.

    They didn’t do this though so the challenge remains as it is, everyone needs to know what they have to do once again some will win and others will lose.

  23. “By all means raise the bar and insist on new entrants demonstrating level 4, 5 or 6 knowledge, you will find little argument with that.”

    ———————————————————————

    Well, that would just suit existing advisers perfectly, wouldn’t it?

    It does, however, strike me as a tad unfair that barriers would be put up for new entrants to the industry, whilst existing practitioners would be permitted to carry on with a completely sub-standard qualification.

    The rules need to be the same for everyone – and if existing advisers are as technically competent as we’re so often told on these very blogs, they shouldn’t have any difficulty in passing the exams.

  24. @Patrick Schan

    Thank you for your questions. Ignoring the inevitable refers to those advisers who have waited until now for some sort of miracle reprieve instead of knuckling down and meeting the RDR standards.

    We have experienced a great many clients leaving their old IFAs and proactively seeking a professionally qualified adviser, and other attributes which are of course equally as important.

    The RDR is useful in restoring consumer confidence. It will prevent advisers from bamboozling investors with opaque commission structures and ensure advisers have demonstrated competence to provide the advice they deliver. Our clients recognise the importance of this. I am sorry to hear that yours do not.

    Please don’t criticise how I dress. That photo was taken on a hot summer day. Only a fool would have worn a suit and tie in that weather. I never wear a tie and the world of business is rarely conducted in suits these days. Maybe more has changed during the past twenty years than you have realised?

  25. Anon @ 3.35pm

    Your argument simply holds no water in any other walk of life/profession/trade call it what you will.

    The system in which IFAs currently work is not and never has been broken – every survey/statistic/scrap of evidence supports this.

    Why are those that advocate qualifications and fees so pompous – if indeed their way is best then they have nothing to fear from those that do not and leaving a system that is not broken well alone.

    Calum McCarthy has an awful lot to answer for.

  26. @ Derek Gair: The difference with other professions is that they were actually required to qualify to a reasonable level in the first place. The benchmark qualifications for IFAs, however, have always been a complete joke.

    It certainly isn’t my intention to come across as pompous – I just believe that standards desperately need to improve. Hopefully exams will go some way in helping to achieve this.

  27. Nick

    “Despite the good behaviour of the many disclosure is still resisted by many and the almost fraudulent suggestion that commission is somehow a “no cost” way of getting advice is still fairly endemic in the IFA sector.”

    We attach the following paragraph to all our estimates:

    “Where the commission is paid to us by the provider in lieu of our fee it should not be assumed that you are not financing our advice; most contracts in this situation are costed by the provider to allow for a certain amount of commission to be paid. This affects the terms by way of, for example, the provider‘s annual management charge (amc), the allocation rate, etc. If the commission is not paid then the terms improve, eg the amc reduces or the allocation rate increases. In this sense therefore you still pay for our services-the provider however reimburses us.”

    If such a clause became mandatory this problem would disappear-really is it necessary to turn a the industry upside down to make this point?

  28. Ken Davy is the voice of reason. He respect professionalism but does not restrict its definition to a certificate on a wall. This industry is a broad-church and those able to pass exams do not need to seek the destruction of those who struggle in this arena.

    The average age of the IFA is 54. Within 6 to 11 years natural wastage will change the face of the industry in any case. What is wrong with a dignified exit? Grandfathering is the acceptable approach to change and will not cause any detriment to our industry. A quick reference to the exemplary record of IFA’s will show that this is one model not in need of fixing. As a law graduate and 2/3rd level 4 I am disheartened by those comments that shout self interest. If you really think a level 4 certificate will make you a better adviser then you are a sad reflection of where this industry together your clients are heading. I fear this is more to do with a level 4 bean feast to be enjoyed by the post RDR survivors than it is anything to do with client benefit.

  29. I shall be gone 2012 and away from all this.
    However the rudeness in some of the comments about other people in the industry will last in my mind for longer. Divide and rule is an understatement. It is another example of the question. Is it a good idea. Answer : only if it helps me. God help us with the cuts next week.

  30. Martin
    I am not waiting for a miracle. Just some common sense.
    Your experience of clients leaving their old IFAs is different to mine so we will heve to agree to disagree on that one.
    My commission disclosure is not one that will bamboozle a client. I make a point of showing them the disclosure page, which you would have to be a moron to misunderstand, and I don’t have any moronic clients that spring to mind. I think they are fairly sure that I have the competence to advise them, as well, because they have noticed that their investments have done pretty well etc. That is what clients appreciate-the job you do. That’s probably why I only work on recommendations.
    I am only too aware of the many changes that have occurred (not relating to the advice process) during the past twenty years Martin. Isn’t Britain a wonderfully better place these days and aren’t people’s standards so much higher now?

  31. In my career as an IFA I have met with many appalling so called professional advisers mainly solicitors. The constant call for a higher standard rather accepts the regulatory myth that existing standard are low, which they are not. FOS complaints stats testify to this truth.

    Our clients love us and hate the banks and yet it is the banks that are not regulated, it is the bank that have brought UK plc to its knees!
    In 2010 IFAs were responsible for 2 per cent of complaints received by the Financial Ombudsman Service and of these only 39% were upheld bringing the number of complaints down to 1.2%. On the other hand banks were responsible for 61 per cent of complaints with 52 per cent of complaints upheld. The IFA record is all the more remarkable when you consider our huge market share!

    Product Distribution 2010 – Standard & Poors Report

    New business
    IFAs 67%
    Tied 24%
    Non-mediated 9%

    So the IFA model is not broken.

    What gets my back up is the constant mantra for higher standards. There is no evidence that higher standard for IFA’s are needed or that the consumers are prepared to lose 10,000 IFA’s, perhaps even their own IFA as the price for this madness.

    So called higher standards have not saved the legal profession. The Legal Complaints Service (LCS) now handles over 300 calls a “day” on a range of legal complaints. Three years of degree study one year at the Common Entrance Exam and two years articles have done nothing to stem the rise of consumer complaints – no wonder the FOS wanted to get their hands on the management of legal complaints!

    Wake up and smell the coffee – RDR is a method of stealing IFA distribution and we should not listen to the many thieves and beneficiaries of this robbery.

  32. Martin, apologies for calling you the wrong name (it could have been worse I could have called you Dick!). What I did like is your use of management speak Change Adopters (or is it really adapters?) and Resistors………… mmmm smacks of the corporate world to me. Another thing confusing me is that whether you have sold yourself in the hope that you are bought??

  33. Having had two previous postings censored/blocked by the sensitive chaps at MM I would like to try a third time. An earlier poster would appear to be afflicted by pomposity of the rear.

    Mr Sunley I wish you a speedy recovery.

  34. Got to love the vested interests of the main protagonists. Hell, if we all ever stood united like a real profession we might not get walked all over all the time…….

  35. Picture the meeting – Davos.

    Lord Turner and Warren Buffett.

    “Hi Adair – considered my request yet?”

    “Sorry, Warren, but until you pass the exams – we do NOT think you are in any way a fit and proper person to offer any financial advice, whatsoever – and if you bump into George Soros maybe you could pass that message along to him as well.”

  36. Matt Timmins - Simply Biz 18th October 2010 at 1:05 pm

    Are we perhaps losing sight of the real issue here? We shouldn’t be arguing whether greater professionalism is right for the industry or whether reaching level 4 is appropriate. This is exactly what we need to drive our profession forward but what is ridiculous is that the FSA impose a cliff edge date without taking into account how much time and money it takes for people to achieve level 4 and how limited the exam routes are. We are only just getting to find out more about alternative assessments at this late stage.

    Leave the requirements set at level 4 but remove the Cliff Edge date and give advisers more time and alternative routesto prove their competences.

    p.s. Philip Stevenson | 15 Oct 2010 12:25 pm. Discussion boards like this are meant for intelligent people to voice their opinions about key topics and not for stupid personal rants. Next time do us all a favor and leave out the insults. It doesn’t make you sound big or clever .

  37. Writes Nick Bamford “ABI analysis shows the average cost to the consumer of the advice they receive about one of the simple products that Julian describes is a staggering £670.”

    Is this figure cited as “staggering” because the ABI consider IFA’s overcharge or is it staggering because IFA’s cannot afford to charge less than this sum?

    That aside, I wonder what business is it of the ABI to undertake an analysis of the relationship between IFA’s and their clients, not least on the issue of remuneration? Surely, this is a job for AIFA? The ABI is the trade body which represents insurers. What does the ABI know about what IFA’s do, how they do it and what they consider appropriate to charge for their services?

    Secondly, £670, in the context of all the overheads of running and maintaining even a quite small IFA practice seems to me hardly “staggering”. It sounds more like a figure arrived at fairly arbitrarily from a multitude of averages. Increasingly, IFA’s are aligning (and discussing quite openly with their clients) commissions with what they would reasonably charge as a fee.

    Perhaps you could tell us Nick: What fee/s would Informed Choice charge for advising a novice investor on how best to create a reasonably diverse portfolio based on, say, £25,000? Could you / would you do it for less (allowing, of course, for the VAT you have to add to your fees)?

    In my opinion, the FSA’s blunt declaration of intent to outlaw commission has been handled about as badly as it’s possible to imagine. Given that the vast majority of clients appear to be quite happy with the commission system ~ provided, of course, that it isn’t abused ~ a two pronged approach would have been vastly better. Many commentators appear to have got themselves into a state of high anxiety by overlooking the fact that it will still be permissible for the cost of advice to be deducted from the sum to be committed to the product. So 3% commission, for example, will simply become a 3% adviser charge (assuming, of course, that 3% is the appropriate amount). The only change (as I understand the proposal) will be that the client will be required to sign an extra page of the application form confirming his/her assent to the proposed charge.

    Why not just say that commission will be replaced by CAR but that by and large the mechanism currently in place will continue as is? Everybody would understand that and all IFA’s who already operate more or less by that methodology would find the transition quite logical. It would also render redundant Blair Cann’s all-round-the-houses text (admirable though, in its intentions, it may be) explaining that commission based advice is not free.

    This, on its own, would not be enough, of course, so the other prong of this FSA initiative should have been to press providers to market products with clean and transparent charging structures, as indeed many are already doing. £50,000 paid into the product minus CAR of, say, 2% would result in £49,000 actually invested and everyone would be happy.

    As I have written many times before, commission in itself is not the problem. The problems are abuse of the commission system (and we all know which sector of the retail financial services community is most guilty of that, even though the FSA seems quite uninterested in doing anything about it), along with product charging mechanisms designed to obscure the way in which commission is recovered.

    Like so many things that the FSA does, it could have been handled so much better. Can’t the people at Canary Wharf see this? Apparently not or, if they do, they seem unwilling or unable to take it on board and put it into practice.

    By the way, Martin, a resistor is a component in an electronic circuit. I think you meant resister.

  38. We should all stop infighting and by all means have a difference of opinion but do not make personal remarks about someone who you do not personally know.Whilst I am hoping I will be at Diploma Level in the next couple of months I am still in favour of Grandfathering.I am in also in favour of raising standards within the auspices of a professional body we should not be faced with a cut off date at the end of 2012.As long as all advisers are showing some progression to higher standards either via exams or CPD.

  39. Simon Mansell 15 Oct 2010 says it as is is

  40. So the exam is just like advising a client is it?? Wow so you see your client ONCE and reach the full advice point in around 30 minutes to 1 hour then?? I think I can safely say that examinations bear NO resemblance whatsoever to what we actually do, which is really a very simple job. If you have a good memory then you can pass them , but that WILL NOT neccessarily turn you in to a GOOD adviser.

    I agree what I advise on is Term assurance, M Prot, ISAS, Bonds, JL 2nd WOL, Annuity Purchase, I have ALL the exams and experience I require for that job, and pass exams every month to keep up to date.

  41. Firstly may i congratulate Martin on achieving chartered financial planning status, However i disagree with the comments directed at Ken Davy who is a well respected figure head in the financial services market place and he is correct the analogy of the nurse is to explain that a nurse would need a degree to get into higher management but a nurse would carry on being a nurse if that is what they wanted, Whilst nobody is in disagreement that higher standards are the way forward i would like to put forward a example i met a corporate lawyer who has a client with a milloin pound plus sipp i am not personally involved in that market place however treating customers faily our technical unit put me on to a recommended discretionary fund management service, i then arreanged to meet the investment manager in person and had a exceellent meeting if this deal comes off it would be looked by a qualified pension specialist, this would put me into the role of a business facilitator. I do not need to be a pension specialist to ensure the client is looked after. Therfore you do not have to be a einstein to be a adviser we should be having intelligent debate not slagging off good men.

  42. Dominic Browning 18th October 2010 at 6:02 pm

    Why is it so shameful to earn a living by selling ISAs and other products? Investment salesmen are highly regarded in other parts of the world. The vast majority of my clients want me to help them purchase the most appropriate savings vehicle and select the most appropriate fund(s). In 2013 I will have my 3% adviser charge deducted from the investment rather than my current 3% commission. What is the problem?

  43. Where is the consumer in all of this? Have the FSA’s consumer panel really looked at this from the consumer’s point of view? I think not. How does a cliff edge help the consumer? My logic is as follows….
    If the average age of an IFA is 55(?), what is the average age for the client of each IFA? Are there any statistics as it will not be the average age of the population as advisers have migrated from tied to Independent as they get older and they do from Banks to IFAs I suspect?
    I am 45 and I suspect (I could check as we have a good client back office system) the average age of my clients is a minimum of 10 years older than me, if not 15.
    If a client is 75 and their adviser is 15 years younger than them, would not grandfathering all advisers aged 55 or older to age 65 make more sense and be fairer to the consumer? If the adviser wanted to serve their client past age 65, there’d be a point in getting the exams or migrating their clients to a new adviser without the consumer being rushed. For advisers under age 55, why not make level 4 five years from now which would allow the adviser charging transition, increased capital adequacy AND for new entrants to be trained to level 4 without an adviser gap occurring.
    It would also give those aspiring to level 6, time to widen the gap and raise awareness of that differentiation and extra professionalism to aim to pick up the clients of the advisers given the 10 years (age 55 plus) that they want and those who have five years time to get qualified ready to take on the retiring adviser’s clients.
    5 Years isn’t then too long for the FSA to loose face in increased quals, but gives a more structured timetable for the consumer and firms.

  44. I wonder if most of you are missing the point? The point being will the six goals of the RDR that the FSA first set out in their June 2007 paper be met?

    1. An industry that engages with consumers in a way that delivers more clarity for them on products and services
    • No – if the IFA sector does wither and become available only to the very wealthy then it will be up to the banks to engage and deliver clarity in a way which they have never managed before within a system which neither prescribes nor expects it.

    2. A market which allows more consumers to have their needs and wants addressed
    • No – it may transpire that only the wealthy will have access to independent advice and so more consumers will be left in the cold unless they approach their bank. Generally banks only have access to a small portfolio of products and so it would seem unlikely that consumers could have their wants and needs met by the most appropriate product in the market place.

    3. Remuneration arrangements that allow competitive forces to work in favour of consumers
    • No – it is true to say that consumers will be in a stronger position to negotiate payments for advice where advice is received. However, it seems depressingly inevitable that the banks will change their sales model to allow them to offer the mass market ‘Basic Advice’, ‘Pure Protection’, and ‘Non-Advised Sales’ allowing them to continue to collect commission payments from product sales.

    4. Standards of professionalism that inspire consumer confidence and build trust
    • Yes/No – this could be achieved within all sectors of the advisory industry. Taking the level of education for advisers up to QCF level 4 is a positive step and may go some way to inspire confidence in the advisory community. However, ‘Basic Advice’ and ‘Non-Advised Sales’ require no qualification, ‘Pure Protection’ requires QCF Level 3 and the regime for ‘Simplified Sales’ is currently set to be at QCF Level 4 but this is subject to further consultation and indeed the FSA are ‘waiting for the industry to respond with a developed Simplified Advice qualification proposition’.

    5. An industry where firms are sufficiently viable to deliver on their longer-term commitments and where they treat their customers fairly
    • No/Yes – Our clients have demonstrated that they prefer to pay for our (independent) advice through a commission payment. Our experience with clients when discussing a fee only proposition has suggested that they will simply do nothing and be deterred from seeking advice. Who knows whether this will be the reality, but surely consumer choice should be taken into account, anything that restricts choice cannot, by definition, be a good thing. If we IFAs are slowly killed off though lack of examination prowess or lack of clients willing to pay fees then the Banks will have more consumers to feed upon – yes they should be sufficiently viable to deliver on their longer-term commitments, but I’m not convinced that they’ll be too bothered about treating their customers fairly!

    6. A regulatory framework that can support delivery of all of these aspirations and which does not inhibit future innovation where this benefits consumers
    • No – this is an admirable aspiration in itself but we may find that innovation is hindered by the lack of competition in the financial sector.

    Unfortunately, the RDR is hurtling on and we IFA’s are squabbling about exams – the biggest issue is the fact that we as IFAs are being squeezed out and the Banks are ready to pounce…

    Sorry that I’ve ignored the Grandfathering debate, suffice to say that I haven’t seen a real reason, one that seems to ring true, why it it should be a problem.

  45. I agree that the exam standard should be raised. Every paper that I have completed has highlighted gaps in my knowedge, and I have learnt something form each one.

    However I am struggling to understand the gap fill requiremnts, I have acheived fellowship and yet I still have big gaps in my knowedge accordng to the CII. for example I have completed 4 pension exams including AF3 and yet I still ahve pension gaps? having completed 2 investment papers is still have gaps in my knowedge concerning ISA’s?

    I hope we can acheive clarity in time to do what ever it is they are going to expect us to do by 2012

  46. Martin says: ’Delivering advice is not same today as it was a generation ago’

    To that could be said: ‘Driving a car on UK roads is not the same as it was a generation ago’

    So …as all drivers – including presumably Martin & similar….are in charge and control of 2 tons of potentially deadly machine. everyone who passed their basic driving test more than say 10 years ago should have all their broad experience to date and probably mostly blemish free record ignored completely…and be given 2 years to pass an Advanced Driving test….or ordered off the road at the end of 2 years.

    Not a direct analogy – but there’s something in there !…

  47. My final word on the matter…..

    I am working towards QCA level 4 and don’t have an issue with exams.

    When will you understand passing an exam means diddly!!!

    The vast majority of the british public are under insured, have no income protection, and little pension provision. They do not have complex needs as do a very small minority of the same public.

    The very people who need us most are to be cast before swine as an IFA cannot afford to provide full advice due to the massive increase in overheads and they will thereofre fall prey to the “simplified advice process” the banks are drooling at the prospect!!!

    As for Benjamin I doubt you will be attracting many clients from other IFA’s with your smug self-serving comments. Are you stupid enough to think that the CII won’t just keep brown nosing the regulator so that you have to do more and more exams?

    Just look at gap fill and all those colleagues who have done JO’s only to find through the CII website that in a lot of cases they fall a long way short. But don’t worry the nice CII will come up with some solutions to that problem.

    I didn’t know they did GCSE’s in such a subject as “basic advice”

    Pogue Mahone you smug git

    Chris Neil

  48. This is the best quality of debate I have seen this week. Well reasoned arguments on both sides are a joy to read instead of the oftentimes smug or vindictive unreasoned comments by, usually, Mr or Ms Anonymous.

    I identify closely with Julian Stevens’s point of view and congratulate him for presenting his thoughts so well. Many bloggers responding to the RDR debate elsewhere seem to be rather bigoted in the view of persons who do not agree with their, often times pro RDR as it stands views. I think that Julian and others in this particular debate have demonstrated that they too possess intelligence, wisdom and, important this, humanity.

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