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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)

  • The FSA Socialist? What they have done will mean that a significant section of the adult population don't have to access financial solutions the way they have done in the past. They have not prescribed an alternative, merely defined the parameters within which alternatives must operate. That's a regulated free market.

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  • People who cannot afford fees for Legal Advice and representation pay Solicitors via Legal Aid.

    Therefore a new form of aid will become necessary - Retail Distribution Aid (RDA) - for those who cannot afford fees for advice and addressing financial needs.

    IFAs will therefore receive fees from the Government- bring it on !

    Really, though, RDR will never work for the wider market.

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  • Keep it simple stupid or KISS is what clienst want. Suitability reports and Key Feautures Documents which started out as 4 sides of A4 get longer and longer as they become sinply a backside covering excercise which covers NOTHING as the more which is written down, the less of importantance a client reads and focuses on. Applicat5ion forms and documents which require multiple signatures become meaningless to a client and they will sign anything put in front of them by someone they trust.
    Richard's document is simple (it isn't for me, but it may work for some), my point is that the age old adage that if it isn't written down (or signed for) it didn't happen has become meaningless to the consumer and also in the eyes of the FOS who may find against a firm becuase too much details was put in front of someone instead of focusing and confirm their understanding of KEY points. The only way to evidence good intent on the adviser and protect against fraudeulent attempst (supported by a warped and politicallly influenced F-pack system) is for all client meetings to be recorded as sound files (or even better audio visual, but that is going a bit too far)
    The F-pack is not however interested in the truth (or evidencing it in this way) as it doesn't suit their agenda.
    One slight fault with Richard's document is that it does not clarify teh FSA lunacy of their being too different types of Whole of Market Mortgage Adviser definitions.

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  • Good form. I expect the FSA could keep up the employment numbers by having each form sent to them for checking and recording before any advice is given

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  • Too simple Richard but a decent start. Clearly a second document is needed to out meat on the bones.

    Your form misses the point though. The FSA identifies product biase and over charging as incentives that create poor advice - note that this is not qualification linked.

    What RDR should be doing is simple.

    1. Take away product biase through the capping of charges.
    2. Bring clarity to charges (stakeholder).
    3. Ensure that advice comes from knowledge/Competence.

    The third objective can be solved by an IFA firm having individual Advisers competent in different areas. As long as an Adviser obtains input from a "qualified" adviser in the relevant area then advice will be competent? I already do this by referring mortgage enquiries from my clients to a colleague in the company who has the relevant qualifications? They key should not be on an individual being a GP but that a firm is able to be a GP - made up of specialists.

    Does this approach not make sense?

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  • I may be the only 1 but I do not think P5 fills the gap or comes anywhere near RDR - a £90 word document created by a furstrated IFA is not the answer.

    I am a well below 60 and a 30 year Industry veteran. My view on this whole process is that good luck to the boys/gals that have passed the exams, the are tough, they are meant to be tough and if you cant hack it, then move on! Quite frankly, all the screaming IFA's are like oxygen to the fire, the louder the voice the hotter the fire - thats how the devil works!!!!

    I actually see a major role for all the IFA's that choose not to go level 4 and this is where the emphasis on change needs to be made as has been created (to a degree) in discretionary fund management).

    The needs to be a link between the client and the advisor, more than a paraplanner, but less that a full level 4, "exam lettered" advisor. Level 4 advisors like Lord Bamford have not spent their time sitting exams for the past number of years to end up filling up fact finds and going on intial interviews. Create a new role for level 3 advisors, permit allow, FPC (or equivalent) to be relationship managers to work with the client but nt to provide the advice. Level 4 advisors, will not have th etime to look after their clients properly, very much in the same way that you go to a GP and and then refered to a specialist. Once you are with the specialist, the GP becomes the relationship manager. I for one would welcome such a role, I may not get paid a 6 gigure sum, but i will certainly be paying my way.

    The commission conundrum is also very simple to solve. If IFA firms are still taking 7%, well like their offshore counterparts who actually can take up to 13% (yes I did say thirteen percent) take the problem away from the IFA's and ensure that the product providers and fund managers are simply not allowed to pay such high commissions to the advisor - PROBLEM SOLVED!

    I have been very much anti RDR, but reading through the latest missives of bleating IFA's financial planning is complex and clients need the assurance that those giving advice can. Look at the European Doctors and dentists that have been grandfathered into the NHS system - need I say more.

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  • Looks good to me but do us mere mortals really understand the issues involved. Please pass it to our professional bodies for their input and hopefully for them to take up with the FSA. Good work on behalf of us all.

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  • When NASA first started sending up astronauts, they discovered that ballpoint pens would not work in zero gravity. To combat this problem, NASA scientists spent a decade and $12 million developing a pen that writes in zero gravity, upside down, underwater, on almost any surface including glass and at temperatures ranging from below freezing to over 300C.

    When confronted with the same problem, the Russians used a pencil.

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  • Well said just a thought. My RDR solution and suitability solution, in fact my solution to everything is record it as an MP3 sound file and change the FOS system to evidence of intent. Bearing in mind RDR Independant v Restricted is supposed to be and "in your own words" explanation of what your restriction is how cna this be policed WITHOUT a recording of not only the words used, but the tone of the voice...
    Give me a pencil anyday.

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  • Mick 11:09 Cap commissions,I brought this up at a TCF meeting with FSA I was told it was political between Providers and the FSA and would not work,no one could tell why it would not work.

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