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A common sense approach to RDR?

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It would be disingenuous to assume that the FSA does not conceive its initiatives with the best intentions.

However, as we are now in the last quarter of 2010 the reality of the RDR becoming a catastrophic failure must weigh heavy on the FSA RDR architects behind closed doors. It was reported earlier this year that the FSA was considering pulling the plug save for losing face. Whilst it is easy to criticise the FSA in general, this is arrogance, ignorance and unaccountability at a level that transcends both Government and democracy.

There is a deep frustration about this entire process that weighs heavy on me almost daily and appears to be shared with almost every industry contact when the RDR is discussed.

It may be that the FSA has no concept of an alternative and are consumed by being continuously “caught in the headlights” as debate on probable outcomes, becomes more factual and frankly alarming.

So, I have an alternative suggestion that follows below, the objective is to meet all of the outcomes of the RDR with manageable evolution rather than suicidal intervention. 

I totally support a move to greater professionalism but this is not the sole domain of examination achievement. Last month, I had to review the work of a firm of chartered financial planners for clients who were executors to the will of the deceased who received the advice from the firm. I uncovered astonishing basic negligence, and muddled business practice that has lead to a “five figure” compensation complaint on the firm.

There is no rocket science in the fact that the qualification process needs  be transitional, affordable and consumer demand focused above the foundation levels.

 There are a significant number of astonishingly capable “senior by age” advisers with skills, knowledge and confidence that this industry and consumers cannot afford to let go prematurely.

So to remind us of where we are :-

The FSA’s estimated incremental compliance cost of the RDR has skyrocketed, with one-off costs rising from £430m to between £605m and £750m.

Its ongoing costs estimate has jumped up from £40m to between £170m and £205m.

The FSA says the incremental compliance costs for the first five years of the RDR is in the range of £1.4bn to £1.7bn. It previously estimated it to be £0.6bn.

An estimated 3000 advisers leaving the industry prematurely. 

FSA RDR objective comment January 2010 from FSA website

“It is essential for promoting a resilient, effective and attractive retail investment market. The RDR will modernise the industry, giving more consumers confidence and trust in the market at a time when they need more help and advice with their retirement and savings planning.…….we now have a very clear view of how the market will react.   ( I don’t think so!)

We set out three measures that we regard as most fundamental to delivering the desired market outcomes that and which will materially alter and improve the interactions between consumers and the industry. These are to:

·     improve the clarity with which firms describe their services to consumers;

·     address the potential for adviser remuneration to distort consumer outcomes;

·     and increase the professional standards of investment advisers


My Alternative suggestion

The aim, to exceed all of the above outcomes over the RDR in common sense approach,  within budget and universal acceptance.

The principle is the P5 form (link to a draft of the document is to the top right of this article or Click here to view the Word document).

This is trying to harness the financial focus for consumers, advisers and product providers in the same way that “5 a day” is universally understood  in relation to good daily food intake.

The P5 gets it name from the 5 Ps – “Proper Prior Preparation Pays Premiums”  this “strap line” is the bridge to bring industry and consumers together to build confidence and a call to action (see reverse of P5 form)

I see the P5 form as a mandatory form that is required to be completed at all initial meetings where a consumer is seeking or being given advice or sold financial products. It requires and assists the consumer in asking and gaining answers to key questions. The form is self explanatory.

The P5 approach

Cost so far  £90 and loads of common sense. Priceless.

Cost of implementation minimal by comparison.

Any thoughts or comments would be welcome.


Richard Arnold runs Richard Arnold Financial Management


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Readers' comments (31)

  • This is far too simple. The FSA would probably want this document to stretch to 20 pages to ensure that clients could understand the concept!

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  • Admirable but unfortunately unachievable for the same reasons they won't abandon RDR.

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  • Richard, this is awesome. Its clear, concise, simple and even a board member of the FSA could understand this if he or she was at an initial meeting with an IFA as a potential client. I commend you for this. Now you should send this form P5 to the FSA and request a meeting with them to ask for them to demonstrate how or why this wouldnt meet RDR requirements. Even they would struggle to come up with something. They could save face, we have a common sense approach that is affordable and the client is in no doubt as to who we are, what we do, how they want to pay us - all before we do any work or client pays a penny. Brilliant

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  • I am one of those advisers who is considering leaving the industry. Although I will be in my 60's by the time RDR is in place. For the life of me I cannot understand why the FSA don't cap commissions. All investment products at the same rate etc etc. This would remove any commission bias in one stroke.

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  • Very good work.

    Go to the FSA and see if you could get your local MP involved too?

    Great cost cutting measure to save £1Billion or so moving forward. I would love to see the little faces of FSA when all these costs could be addressed by your process and two sides of A4!

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  • Richard's attempt to simplify the disclosure process is admirable.

    It is though a pity that the anecdotal tale of the Chartered Financial Planner is used here, Can you imagine the vitriol of some of the readership if such an example was put forward by a highly qualified IFA about a less qualified adviser?

    Question for Richard did you put this to the FSA during the very protracted consultation phase and if so what was their response?

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  • Congratulations Richard a very good document and i can see it working!! If only ..........

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  • I am not a defender of the RDR process, but this form looks a bit like something from home insurance times. It's just a tick list with a signature at the end of it, which everybody hopes will solve all of our problems (not).

    Not only should the FSA get real but also the writer of this article. The problem with the industry is that we have too many individuals with far fewer ethics and thus we have reaped what has been sown.

    I came across client recently that had been sold and investment bond with 7% commission with little justification. I thought that this behaviour had gone out of the industry a long time ago and may be what needs to happen is a standardisation of commission overall product ranges rather than just banning it. Not convinced that commission banning will help the low paid get independent financial advice. But if commission is to remain then there needs to be standardisation to stop product led advice.

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  • Oh Richard,
    Doomed to failure I'm afraid. It's just far too sensible!! If implemented it would result in hundreds of job the FSA.

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  • 'Simples'

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