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Categories:Other,Regulation

Nic Cicutti: IFA hangers-on must be shaken off

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Will IFAs be ready in time for the RDR? Do they even want to be? I ask these questions after reading a fascinating article by Martin Bamford in Money Marketing, in which he asks whether thousands of IFAs will run out of time to meet the January 2013 deadline.

He warns that IFAs are in danger of not making it because they are unprepared for the work involved. He points out the FSA has started giving accredited status to professional bodies, allowing them to provide statements of professional standing to financial advisers.

This supposedly gives consumers the reassurance they need that their adviser subscribes to a code of ethics, is properly qualified and has kept their knowledge up to date, by means of agreed annual CPD activities.

Unfortunately, things are not so easy, Martin suggests: “I can envisage a scenario where lots of advisers leave their applications until the last minute, which could cause problems when they discover their gap-filling is not up to scratch.”

An even more worrying scenario could unfold in terms of how IFAs prepare to implement key aspects of the RDR in so far as pricing is concerned. The reality is That things will be a lot harder than advisers imagine.

There are two problems with this approach. The first is that while adviser-charging linked to the implementation of a product purchase decision by a client may seem relatively similar to the current practice of commission payment for the same service, in practice, it is not.

Consumers will expect far greater transparency and while they might have been reasonably happy until now to allow an adviser to charge for his or her services by means of commission, they are unlikely to do so in the future.

Given the above, IFAs need to work out a sensible business strategy that is properly road-tested to iron out any last-minute wrinkles, so there are no nasty surprises in just over a year’s time.

Martin argues: “It takes time to create, test and refine a compelling proposition. This is not something that can happen overnight. It is probably not something that can happen in the space of a few months.”

Essentially, the central proposition of his argument is that IFAs need to buck their ideas up if they want to be ready for 2013.

But what if they don’t, or could hardly care less? What if a sizeable proportion genuinely believe they can just blag their clients?

Increasingly, I suspect that to be the strategy of many advisers.

Some IFAs may hope they have a window of at least 12 months, possibly even a couple of years, before the penny drops with consumers about some of the key aspects of the RDR.

If that is the case, this group of advisers will be thinking, why bother, when there is plenty of time left before any harsh realities have to be confronted? Some of those realities may never need to be confronted at all.

After all, if you are one of the group of late 50-somethings, you may not bother sticking around long enough for your client bank to desert you - and that’s assuming they were likely to in the first place. Under such a scenario, all they need is a couple of years more, give or take, making money off their clients and they are home and dry.

I suspect they may have a point - a hang-on-by-your-fingertips strategy is just as potentially viable as Martin’s one.

My gut feeling is it will take a lot longer than he assumes before consumers genuinely take on board some of the key arguments about what the RDR means to them. Unless, of course, both the FSA and the consumer press do not let up from day one of the new regime.

Which is why, if I were the regulator, I would be willing to spend many millions of pounds informing the public about the RDR, what its potential effect and advantages could be and the kind of questions that clients need to think about asking their advisers.

If I were a journalist on a national paper, I would be telling my readers in immense detail about the changes and demanding that IFAs come clean about the way they charge and what kind of service they will offer their clients in future for the money they receive.

In that respect, the battle after 2012 will be between boring people to death and overkill against inertia and the status quo.

I would love to think that even though some advisers will slip through the cracks and bamboozle their clients for years, the majority will not be able to get away with it.

My worry is I might be wrong and that even after 2013 life for many IFAs will be a case of business as usual.

IFAs like Martin, who believe in better ways of delivering advice, need to club together to make sure it does not.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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Readers' comments (22)

  • A good article Nic. Significant numbers of advisers will take very little action, even to the point that older IFAs will switch to giving 'guidance' if they can't meet RDR advice requirements. The general public are bored senseless by this type of thing, and it VERY likely that the unfolding recession/depression/ Eurozone meltdown will totally overshadow any RDR message that is put out there.

    I am told by a number of providers that many RDR ready NMA firms in fact have substantial commission incomes used to offset fees. They do not however readily admit to this. IF that is true, there is perhaps a lot more work to do than anybody guessed.

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  • Nick Cicuti Spouting his usual space filling rubbish, being the commission hungry journalist he is!!!!
    He Quotes "I would love to think that even though some advisers will slip through the cracks and bamboozle their clients for years, the majority will not be able to get away with it." That statement totally stinks Nick, as do almost all of your articles, poorly written, unresearched and generalistic. Its space filling to earn your crust.

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  • Nic
    You have made a number of valid points that have been around each time the regulators have proposed and implemented changes.
    Nothing much does change and it seems we are always fighting the battle of commission verses fees.
    Ultimately the consumer remains the sole arbiter of which one to chose.
    However if they are not interested (many will carry on oblivious to any in depth analysis of which one is right or wrong)
    Spending lots of money(yours and mine if it is from the regulators or authorities) will not make much of an impact-it never has before so why should it now?
    Ultimately I believe RDR will come and go ,as have so many other schemes.
    The new 'must pay' Pensions proposals (for example)will I know fall away as soon as people realise that they will not be any better off even if 'force' is used to make contributions.
    Who gets paid for this scenario?
    The fees based planner,the direct sales person,the IFA-none of them!!
    If you honestly believe that RDR should be implemented why not create two level playing fields and have a structured commission based set of rules and a fees based set-is this a bridge too far?
    With RDR so far nobody looks like being a 'winner' let alone the client.

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  • I can just imagine the furore that would result if all financial journalists had to take the same exams as IFAs in such a short time, whilst at the same time trying to earn a living and if they do not meet the deadline date by which new qualifications had to be obtained and statement of professional journalism obtained, that they would no longer be allowed to comment on or write about financial services !

    I wish!!

    Much of what Nic writes is sensible and well put, but the rush towards a cliff edge, lemming style approach to bringing financial advice up to a higher standard is just plain daft.

    The product providers are not even ready for RDR, never mind the advice sector and what about the banks, getting rid of advisers left right and centre and slanting their processes towards non advised product sales over the counter and via the internet on execution only.

    Caveat Emptor !

    Time is the issue, such draconian changes in such a short space of time to existing advisers and their business structures need more time to plan and implement the necessary changes coming in

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  • I think that Nic Cicutti is wrong in suggesting that clients would not prefer that their IFA is paid on the basis of commission for the future, if they had the choice.

    I have offered the choice of commission or fees to my, mainly, lower to middle income clients for a good number of years. Where appropriate, I provide alternative illustrations. In 99% of cases, or more, they select commission.

    Of course, unethical advisers can abuse the commission system, as the gross misselling by target-driven bank staff has shown over the years. A effective Compliance Regime should have been able to stop that. Unfortunately, the major firms, such as banks, appear to have been able to twist the FSA round their little fingers in the past.

    As has been said many times before, I fear that the compulsion for fees post-RDR will mean that independent advice will be available only to the wealthy and financially aware people. The remaining greater part of the population, who really need the services of an independent adviser will be priced out.

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  • "If I were a journalist on a national paper, I would be telling my readers in immense detail about the changes and demanding that IFAs come clean about the way they charge and what kind of service they will offer their clients in future for the money they receive."
    And such journalists should be doing this Nic. But they should also be telling the general public that they must be prepared to pay for the advice that they are seeking rather than think it is a free commodity.

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  • I totally agree with you Nick when you say ' Which is why, if I were the regulator, I would be willing to spend many millions of pounds informing the public about the RDR, what its potential effect and advantages could be and the kind of questions that clients need to think about asking their advisers'.

    Unfortunately, the regulator in this instance appears determined to see the demise of the IFA fraternity.Hence, lack of information to the general public will only assist their efforts,causing confusion, and an endless stream of people seeking 'advice' from the recently confirmed non-IFAs who will still be able to claim commission. (That in itself will create endless headaches for the providers who have spent millions preparing to provide RDR compliant products).

    You then go on to say 'If I were a journalist on a national paper, I would be telling my readers in immense detail about the changes and demanding that IFAs come clean about the way they charge and what kind of service they will offer their clients in future for the money they receive'.

    Nick - get a second job and start informing the public - someone has to- for all our sakes.

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  • "bamboozle their clients" says a lot about how Cicutti thinks. When will he, and the FSA and most of the financial press finally acknowledge that most IFAs have been doing a decent job and that IFA clients have, generally, been afforded far better guidance and value-for-money products than if those same people had been left in the clutches of the banks. It is shameful and disgusting that the regulator (in cahoots with government), whilst pretending to be the people's champion, is deliberately implementing policies which are likely to decimate the Independent Adviser sector of financial services . At the same time, the FSA is indirectly extracting from Joe Public their own 'snout in the trough' big salaries, expense accounts, gold-plated pension schemes, bonuses (for failure), knighthoods and seats on the board of banks and other financial institutions.

    The fact is that RDR will deliver very little beyond ensuring that ALL advisers have reached a decent level of competence (assuming that passing exams proves as much). This in itself would have been a worthy aim.

    As for the commission versus charges debate, most clients will finish up paying more in charges. Firstly to help IFAs cover the outrageous sums being taken out of their pockets by an incompetent, arrogant and out-of-control regulator, and secondly because of the virtual removal of any kind of cross-subsidy when dealing with clients. If you can't pay you don't receive advice. If you can pay then you'll pay more for all the 'servicing' that, in many cases, will be surplus to requirements and carried out to satisfy the regulator rather than the needs of the client.

    The best servicing policy, in my mind, is not to set up annual reviews whether or not they are needed, just to find that one month after the latest review the client contacts you to say they want to move house. Rather, to tell the client about your 'open door' policy which asks the client to contact you at any time they feel their changed (or changing) circumstances dictate, when you will be pleased to look at anything and everything (review) at no additional cost. Such reviews are more timely, more relevant and more appreciated than simply turning up just to prove to the regulator that the client is being serviced.

    To my mind, people like Cicutti just stir up s**t and when there is no s**t to stir they simply make it up !

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  • I know vastly experienced advisers who are taking retirement because of RDR and I find it rather sad that these dedicated professionals will be lost. I have the RO1 study material and very little of it is relevant to my role. I have chosen to drop the investment/pension advice and return to being a mortgage broker. When I come out of my personal recession I will consider studying for Level 4.

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  • ".. think it is a free commodity"

    Well, it's hardly 'free' is it? Where does the money for the commission come from? And more importantly, whose money is it really?

    Those are rhetorical questions, by the way!

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