2012: The final RDR countdown
Natalie Holt looks ahead at a vital 12 months as the RDR moment of truth looms for advisers.
2012 marks the last year of the pre-RDR era and many advisers will have a fight on their hands to ensure they are ready in time.
The countdown now begins in earnest. Much of the debate has focused on advisers reaching the minimum QCF level four qualification requirement but firms which are yet to adopt an adviser-charging model will need to think carefully about their preferred method of charging and perhaps try several different models before deciding which is most suited to a firm and its clients. This will not be something that can be implemented in the dying months of 2012.
BDO financial services risk and regulatory practice director Alex Ellerton says: “There may be firms who are working to the idea that they have a whole year to get this sorted but when you look at the length of time it will take firms to make the necessary changes, you realise a year is not that long. Firms need to have made changes by at least the third quarter, so will need to be spending time in the early part of this year really making sure they understand what the business impacts are.”
In figures cited to the Treasury select committee last year, the FSA said, based on its research, 91 per cent of advisers expect to meet the qualification deadline. The research suggested 50 per cent of advisers already hold an appropriate qualification.
Zurich UK Life principal of government and industry affairs Matthew Connell says the number of advisers who achieve QCF level four over the next year will be subject to close scrutiny by the TSC and this could potentially throw up issues about the qualification deadline.
Connell says: “This year is the moment of truth. The way the FSA structured its response to the TSC was based on 90 per cent of advisers reaching QCF level four. If we see start to see figures that are far short of 90 or even 80 per cent, then the select committee is going to be in a position to call the FSA in for questioning.”
But Lansons public affairs and regulatory consulting director Richard Hobbs believes debate on the RDR is “yesterday’s story” and says the RDR will only come under the spotlight again when the time comes for an implementation review.
Along with many others in the industry, Hobbs awaits with interest the outcome of ongoing European negotiations over Mifid II following concerns last year that a draft of the European directive suggested restricted advisers may be allowed to receive commission.
Connell agrees Mifid II will be a development to watch this year. Although the European Commission has suggested Mifid II is compatible with the RDR, he says given the current state of UK relations with the rest of Europe, the FSA should not be complacent in securing a comm ission ban for all advisers.
Connell says: “The European Commission is in the middle of all the recent high drama, with vetoes and talk of protocols for UK financial services. The question is whether, as a result of this, the commission may come under pressure to make life tough for the UK. This issue could become much more politicised than it has been up to now.”
This year will also move closer to the new regulatory structure to be created under the Financial Conduct Authority and the Prudential Regulation Authority.
Hobbs believes the Financial Services Bill, which will set out the new regulatory framework, will be a big issue. Following the publication of the joint select committee’s report into the draft bill shortly before Christmas, the emphasis will be on ensuring accountability of the new regulator is enshrined in law.
Aifa director general Stephen Gay says: “One key theme for Aifa this year will be how to influence the new regulatory architecture through the Financial Services Bill. This provides an opportunity to press for a regulatory approach which is more accountable and responsive to the views of our community and regulates in a way that is more economic and proportionate.”
Another inescapable area of reform this year is that of the Financial Services Compensation Scheme. The FSA aims to consult on the FSCS funding review in the first half of the year. The funding review was started in October 2009 but delayed a year later due to regulatory reform in the UK and ongoing development of the European investor compensation scheme directive.
Gay says the reopening of discussions on the design of the compensation scheme represents a key issue for Aifa to tackle over the coming year as well as the ongoing debate about the handling of Keydata recoveries.
Advisers are still smarting from a £93m FSCS levy a year ago to cover compensation costs relating to Keydata, as part of a £326m interim industry levy. The FSCS has already warned advisers about the prospect of a further £40m interim levy this year to pay for higher than expected costs for Keydata, Wills and Co and other stockbroking firms, while compensation costs for Arch cru and MF Global could push investment inter-mediation costs above the £100m threshold. Advisers have so far paid £30m in the 2011/12 year.
Connell says: “This issue has become so emotive, as more and more poorly run firms fail and then well run firms have to step in and pick up the pieces.”
After constantly being forced to pick up an increasingly expensive tab for other firms’ mistakes, advisers will need to make their voices heard about the future funding model of the FSCS. They will need to push for a compensation scheme that does not penalise the good adviser firms still left standing.