MM Leader: Clients will be caught up in RDR confusion
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With just over two years to go until the RDR deadline, it would be nice to have had all the details nailed down by now so that businesses could push on with the changes that need to be completed to stay in operation after December 31, 2012.
The debate that has been stirred up in the last few weeks over the differences between restricted and independent status and the attractions or drawbacks of each, or even what the different terms actually mean, amply demonstrates that confusion is still rife in the industry about the FSA’s new requirements.
Just as important as clarity on the regulatory requirements is the need for IFAs to be clear about how the new rules will apply to their businesses.
The last two weeks have heard the opinion from SimplyBiz that only 4 per cent of IFA businesses will choose the restricted label come 2012.
This has been countered by claims that this is based on a flawed understanding of what the term restricted advice means. Some say that many more advisers will actively choose to adopt the restricted label, even though the qualification and capital adequacy rules will be the same as independent, because it either suits the business model used or it is more cost-effective. Another option is to offer restricted advice alongside full independent advice within the same firm.
The potential size of the move from independent to restricted is sufficient for former Aifa director general Chris Cummings to suggest in last week’s Money Marketing that Aifa may have to consider admitting restricted advice firms into its membership.
Judging by some of the comments on the Money Marketing website, Aifa may have a struggle on its hands to convince some of its members that expanding the membership is the way forward.
But whatever Aifa and its membership choose to do, and almost regardless of the number of firms that do choose to adopt the restricted label, the fact the industry itself still cannot decide what the difference between independent and restricted advice is and how this will affect an advisory firm in practice means that clients will have almost no chance of understanding the difference.
If one of the aims of the RDR is to improve customer understanding of the distribution of financial services, it will fall far short of its intentions.
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Readers' comments (4)
Peter Butcher | 23 Sep 2010 10:24 am
In truth, have the interests of clients/customers ever been a driving factor in RDR?
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Mike Fenwick | 23 Sep 2010 11:29 am
The adoption of the phrase "restricted advice" is wrong, and I believe it has implications as yet little understood.
Does an acknowledged expert, on say pensions planning, but who works for an Insurer/product manufacturer offer "restricted advice", or is it the range of "products" that he can offer that is restricted?
That is where it is the advice that adds value, and the product may diminish it..
Few would disagree that managing an investment portfolio calls for diversification, or when compensation limits (despite the proposed increases) equally calls for diversification - then being able to offer products across a range is important, and could be crucial.
That is where it is the choice from a range of products that adds value, and perversely where perhaps the advice pver product choice (Keydata) may diminish it.
Might it not be the case that over time at least some consumers may seek out the best advice, and pay for it, and then choose the products from another source entirely, and pay for it?
There are already indications of that divergence where lenders offer loan deals direct, not available through intermediaries, (product not advice).
I suspect that trend to increase as volume production, or the lack thereof, in other areas of the market dictate an increasing divergence in what are called "factory gate prices" post RDR (again product not advice based).
Ensuring that consumers can distinguish what may be "restricted" - product or advice is for me a key part of what RDR should address - not confuse.
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Evan Owen | 23 Sep 2010 11:48 am
Depolarisation Mk II, Son of Depolarisation, Depolarisation the Sequel, whichever way you put it the result is the same.
If at first you don't succeed, destroy all evidence that you tried by calling it something else.
This is all about propping up the compensation machine which has become their prison, and yours.
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Harry Katz | 29 Sep 2010 6:28 pm
The one point I haven’t yet seen aired is how will this be policed? What will be the disclosure rules and how will they be implemented?
We all know that even under the current system there are those entities who try and flummox the public by trying to blur definitions and getting people to believe they are independent when they are very far from it. So now how will you separate out a simplified adviser from a basic adviser from a restricted adviser and all of them from an independent?
A good start would be if only the independents were permitted to use the word advice. The rest are really just floggers. Even then it would still need some robust policing – which we just don’t have. After all these years of regulation I have yet to see someone hauled up for purporting to be what they are not.
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