Listen to the Treasury select committee over RDR
Share
The FSA should now listen to the (mainly) sensible and balanced report from Andrew Tyrie’s Treasury select committee and implement a delay to the introduction of the retail distribution review.
Statistics show IFAs have already made great strides in recent years to improve qualification levels, with the majority expecting to reach the required standards by January 1, 2013 and many already achieving or on their way to level 6.
But, as the MPs point out, there is a big danger that a significant number of IFAs will miss the deadline. The MPs are calling for a delay to ensure as many good advisers as possible are able to remain in the industry plus a softening of the cliff-edge for older advisers who only want to stick around for a short time post-2012 on a case-by-case basis.
Both proposals are sensible solutions which do not risk the admirable goals of driving up qualification standards and implementing more transparent charging structures.
The FSA’s immediate response was to send out a press release rejecting the MPs’ calls. But perhaps it is time for the regulator to take a step back and think again about what it truly wants to achieve from the RDR reforms, whether a short delay and a softening of the cliff-edge really threatens these aims and whether the positives of a delay outweigh the negatives.
The positives of a one year delay combined with some flexibility for certain experienced advisers on a case-by-case basis are pretty clear. We want as many decent IFAs remaining in the industry as possible. If a combination of heavy work pressures and a late start in knuckling down to study mean a significant number of IFAs who would otherwise make the grade are left unable to advice for a period of time then perhaps a dose of pragmatism is required.
In the past the FSA has been worried a delay would simply mean IFAs down their revision books for another year before rushing to reach the new deadline but with most advisers in the middle of their studies and more clear about what they need to achieve this is unlikely to be the case.
The FSA has also not wanted to be seen backing down to what it would describe as the “angry IFA mob”. But a report led by one of the most respected of back-bench MPs is surely the perfect opportunity for the FSA to reassess its RDR timetable.
There will be quite a few on the “sod you I’ve passed” side of the fence who point out that the reforms have been coming for a number of years, offering plenty of studying time. True, to an extent. But we are where we are and without the aid of a time machine or closing down your business for a few months a lot of small firms are going to struggle to meet the deadline.
The FSA’s other big argument against a delay is that a magically conjured up figure of £600m of misselling is taking place each year, that this will end on January 1, 2013, and that any delay will lead to this consumer detriment continuing longer than necessary.
The FSA’s dodgy dossier of misselling statistics, based on a meaningless mish-mash of historical data, has already been shown up as little more than a lobbying device to defend itself against political RDR attention. MPs on the TSC appear very unhappy with the evidence presented by the regulator on this issue.
With less than 18 months to go until the RDR deadline we still await the regulator’s platform rules and plans for simplified advice whilst there is continued uncertainty over the tax treatment of advice services and what will constitute legacy commission. Behind the scenes some of the big insurers are very worried about getting their systems ready for adviser charging on time and the likes of PricewaterhouseCoopers are now suggesting that a delay could be beneficial.
Under these circumstances a relaxation of the deadline to ensure the reforms are successfully implemented, rather than botched through the dogmatic desire to keep to an arbitrary deadline, does not seem like the most unreasonable thing in the world.
The report makes a number of other suggestions, some good, some bad some terrible. The proposal that private banks are able to circumvent the RDR by allowing HNW clients to sidestep the new requirements conveniently ignores the fact that some of these institutions were responsible for a large share of the worst misselling exposed by the credit crisis.
The TSC’s decision to swallow the FSA’s line on factoring, rather than questioning the Office of Fair Trading’s insistence that standardised factoring should not be allowed, is regrettable, although this particular battle was probably lost a long time ago.
Elsewhere, the FSA makes a persuasive case for how it is going to look to ensure firms do not use European passporting rules to get round the RDR. Whether it will be able to enforce these powers remains to be seen.
The Treasury select committee is a powerful political institution which deserves better than the swift rejection of its RDR proposals we have seen from the FSA in its press released response to the report.
Throughout the course of the RDR the FSA has consistently failed to take on board the legitimate concerns of practitioners. It could be a big mistake to treat this committee of MPs in the same way.
Paul McMillan is editor of Money Marketing - follow him on twitter here
If you enjoyed this article, sign up here to receive daily email updates from Money Marketing and Follow @_moneymarketing
View results 10 per page | 20 per page | 50 per page
Readers' comments (22)
Anonymous | 18 Jul 2011 9:33 am
Don't agree, this is the one thing the FSA have got right. Not so much the bannnng of commisision, but the level of knowledge from some advisers is truely appalling. If they can't pass Level 4 by 1st June 2013, they should do something else, there has been enough warning.
Unsuitable or offensive? Report this comment
Garry Heath | 18 Jul 2011 9:40 am
One benefit of a delay would to give time to those wishing to leave the industry to place their clients with those willing to go on.Ideally for a reasonable sum.
This debate which has been conducted by those with a vested interest in the introduction of RDR has missed the orphans it creates.
The way the FSA has told the TSC (Parliament) to get lost shows what a monster the last government created. We cannot have statutory bodies set loose without proper Parliamentary control
Unsuitable or offensive? Report this comment
Phil Castle | 18 Jul 2011 9:43 am
Having increased my capital adequacy, been working on adviser charging for several year and taken a step back from advising anyone other than existing clients for the last 3 months so I could do my Level 4 in extra quick time (I had 20 CII diploma points from about 2000 on 26th March 2011 and have since completed my Diploma in 3 1/2 months, but at the expense of taking on new clients and developing my business), I could be one of those "sod you" advisers who says RDR shoudl stick to the FSAs deadline.
BUT I firmly believe that the FSA has NOT clearly outlined or resolved all the issues that remain and for teh FSA to respond the same day as the TSC released it's report is complete arrogance on the part of a regulator who takes no notice of anything anyone else says including THE STATUTORY CODE FOR REGULATORS. The FSA has it's plan and it will instigate it.....
The RDR timeline should not have a ticking clock start until ALL the issues are identified and solutions suggested, debated and agreed and with the platform issue, trail issue and VAT issue, still not resolved, it is wrong to have a ticking clock. If the FSA can get all these issues resolved by the end of the 4th quarter 2011, then the delay the TSC is suggesting i.e. to January 2014 is extemely sensible as it will allow the maximum number of those who are willing and able to continue to serve the consumer to remain.
Even being ready with most of my RDR requirements as I mentioend above, I am not conviunved that staying in the FS industry will work for me and I will not know until the FSA reolves the issues still outstanding.
Unsuitable or offensive? Report this comment
Anonymous | 18 Jul 2011 9:47 am
All IFA's know from experience how arrogant the FSA is. For them to issue a statement rejecting outright the concerns of our elected representatives is outrageous.. The FSA is an organisation that beleives it is above the law and just about everything else i this country. Sants should be called infront of the TSC and told that unless he listens to Parliament he should resign
Unsuitable or offensive? Report this comment
Anonymous | 18 Jul 2011 10:08 am
I am 51 years old have been an IFA since 1991 advising mainly post retired individuals on their investments, most of my clients have been with me for over 10 years and some much longer.
About 3 years ago I was diagnosed with depression and prescribed pills which are known to effect a persons ability to concentrate; however I have managed to pass the CII's R01 exam on the second occassion and have just failed for the second time the R02 as I find studying very difficult. I do agree that exams will offer the public a more professional IFA sector and will endevour to keep taking the required examinations, but as a small IFA and being the only adviser in the business fear that I will be forced to sell my business before the deadline expires.
I have spoken with the FSA and have written to my MP William Hague about this and both told me that the deadline will stand, I firmly believe that if employees of the FSA, Government or the Public Sector workers had the threat of losing their livelyhood for a similar health issue all hell would be let loose; unfortunately ISA's are not accorded the same level of employment protection.
Unsuitable or offensive? Report this comment
Nigel Barker-Smith | 18 Jul 2011 10:12 am
Very disppointing. Doesn't matter whether you delay it one, two or three years, if you're not well, on the way already then your never going to be ready.
Just out interest, what difference will it make if we lost 50% of the IFAs post RDR? I don't see clients actively queuing outside IFA offices.
Practice what you preach, assuming that we advise clients on how to PLAN their money and resources to meet targets and objectives.
Where's the courage and conviction to better yourself and the profession. Everyone can come up with reasons not to work or think differently.
To some degree the dealine is irrelevant as the firms and individuals that have made the effort don't need the deadline and have already moved the profession to a different level. Those that haven't should be more worried about their competitors not the FSA!
Unsuitable or offensive? Report this comment
steven Farrall | 18 Jul 2011 10:20 am
All very well but what, more than anything, that leaps from the pages of the TSC Report and the FSA's authoritarian response to it, is the utterly undemocratic unaccountable nature of the FSA. For the avoidance of doubt the State exists for our benefit not the other way about. The FSA has basically told our democratic representative to go forth and multiply (which Sants did verbally to the estimable George Mudie MP in the TSC meeting). The recent scandals around MP expenses, The Met, the Newspapers and so forth always occur when there is no external accountability. The FSA is likewise unaccountable and exhibits all the traits of latent corruption. Plus let us be absolutely clear, it has already failed by precipitating the failure of innumerable banks. In regards to the RDR construct itself, if Sants is so sure that his model is one that is wanted by the 'market' I suggest he goes and starts an IFA business based on that model and see how he gets on. The ‘market’ will pretty quickly let him know whether he is onto something or not.
Unsuitable or offensive? Report this comment
steven Farrall | 18 Jul 2011 10:22 am
Ah, anon @ 09.33 - an FSA troll no doubt.
Unsuitable or offensive? Report this comment
Anonymous | 18 Jul 2011 10:26 am
Re Anon @9.33
The level of knowledge from some advisers is indeed truEly appalling the FSA should think of bannnng them.
Agree entirely with Anon @ 10.08, if FSA & Public sector workers require training they are given time off to study & take more exams and are paid to do so. They have no need to study & run a business at the same time.
The FSA has no idea what it is like to run a business as a sole trader. There are simply not enough hours in the day.
If the FSA refuse to listen to the TSC, we are left with a flawed democracy whereby we have an unelected, unaccountable quango telling those who are elected & accountable to get lost.
This type of quango would be more at home in Lybia, egypt, north Korea or any of the former Eastern bloc Countries
Unsuitable or offensive? Report this comment
Richard | 18 Jul 2011 10:41 am
An Extract from my submission to the TSC.
Why the RDR has the capacity to be a cataclysmic disaster.
1 Fundamentally, it fails to recognise the seismic shift in economic consequence following the so-called global credit crunch since its conception in 2006 which reflected a significantly different economic climate. Government departments, Local authorities, large and small businesses alike are currently in the process of reducing cost while maintaining current levels of service and economic activity. Only the FSA alone feels it appropriate to add £1.7 billion worth of cost to an industry on what is no more than an experiment that has the capacity to threaten viability.
The industry is grappling with continuous change such as the EU directive under solvency 2 and most recently the impact in respect of EU Gender Directive, which ironically could deliver greater “constructive” consumer detriment than any that the RDR seeks to solve.
2 When eventually the consumer understands the implications through
sensationalised media coverage in late 2012 ( ie, Example News Headlines: Be prepared to pay up to £450 an hour for financial advice in the New Year……….) it is likely to translate into a 40% drop in consumer activity as fear of cost becomes the justification for not addressing personal financial issues. This possible outcome should not be ignored. The general public are hugely influenced by media reporting irrespective of its accuracy. The best example we have of this is the issues surrounding the MMR vaccination. When the media reported a possible side effect, albeit from a spurious source, it took eight years before confidence and clear understanding to be regained.
3 The FSA sees commission at a far to simplistic level. Commission is a
legacy of direct sales. Modern financial advice is “point of entry intensive” and shoulders the regulatory costs, together with market research, knowledge administration and operational overhead. The cost reality is often far greater than the clients perception. It should have been renamed in 1994 when hard disclosure was introduced to something along the lines of “ASC” - Advice and Service Charge. See ACT above.
4 Greater professionalism is prerequisite that nobody would argue. New entrant levlel 4 is perfectly sensible. The FSA's approach to the subject of qualification is typically FSA. The weakness in the current system is the lack of structure and verification of individual continued professional development (CPD) which should be implemented and administered by the respective professional bodies. At present it is left to individual advisers integrity, ironicaly which may be the same individuals that concern the FSA with consumer detriment. There are no proposals for change to this? CPD should be reactive when significant changes occur in legislation, taxation and legal subject matter. The current push for level 4 simply represents many people spend the hours gaining no new knowledge, simply providing a profit windfall for the education institutes. Both the time and money could and should be spent on individuals pursuing the appropriate qualifications for the particular business area of advice that they specialise in. It is the pursuit of individual greater qualification that can demonstrate genuine commercial differentials for firms and should be voluntary for all existing authorised investment advisers. I believe the industry would see a formalised CPD as money well spent and reassurance for the consumer that advisers are continuously up-to-date.
Formalised CPD that could directly report to the FSA register, would be a huge confidence builder for consumers which I believe was the FSA objective and offers low cost electronic policing for the FSA. This could be achieved at a fraction of the cost of the money being wasted in pursuit of level 4.
This would create an environment where grandfathering would not be required as CPD maintains initially the status quo and moves forward all advisers from new entrants to those with many years service at the predetermined knowledge level.
In principle I believe this is how every other profession works. Those individuals who see personal and commercial advantage in higher or specialist qualifications can focus on the individual requirements. It is natural competition and competitive advantage that will drive up qualifications providing that the economic environment justifies the additional time and investment. Crucially, therefore it is the economic environment and the viability of the industry that best serves the interest of the consumer.
I feel better now having got that off my chest.
In 2005 Prime Minister Tony Blair, who’s Government created the FSA, commented in a speech to the Institute of Public Policy,
“Something is seriously awry when the FSA that was established to provide clear guidelines and rules in the Financial Services sector and to protect the consumer against the fraudulent, they now seem to be hugely inhibiting of efficient business by perfectly respectable companies that have never defrauded anyone”
Which conveniently leads me to one final question:-
Does Parliament have the power to stop this process?
Unsuitable or offensive? Report this comment