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2012: The final RDR countdown

Natalie Holt looks ahead at a vital 12 months as the RDR moment of truth looms for advisers.

2012 marks the last year of the pre-RDR era and many advisers will have a fight on their hands to ensure they are ready in time.

The countdown now begins in earnest. Much of the debate has focused on advisers reaching the minimum QCF level four qualification requirement but firms which are yet to adopt an adviser-charging model will need to think carefully about their preferred method of charging and perhaps try several different models before deciding which is most suited to a firm and its clients. This will not be something that can be implemented in the dying months of 2012.

BDO financial services risk and regulatory practice director Alex Ellerton says: “There may be firms who are working to the idea that they have a whole year to get this sorted but when you look at the length of time it will take firms to make the necessary changes, you realise a year is not that long. Firms need to have made changes by at least the third quarter, so will need to be spending time in the early part of this year really making sure they understand what the business impacts are.”

In figures cited to the Treasury select committee last year, the FSA said, based on its research, 91 per cent of advisers expect to meet the qualification deadline. The research suggested 50 per cent of advisers already hold an appropriate qualification.

Zurich UK Life principal of government and industry affairs Matthew Connell says the number of advisers who achieve QCF level four over the next year will be subject to close scrutiny by the TSC and this could potentially throw up issues about the qualification deadline.

Connell says: “This year is the moment of truth. The way the FSA structured its response to the TSC was based on 90 per cent of advisers reaching QCF level four. If we see start to see figures that are far short of 90 or even 80 per cent, then the select committee is going to be in a position to call the FSA in for questioning.”

But Lansons public affairs and regulatory consulting director Richard Hobbs believes debate on the RDR is “yesterday’s story” and says the RDR will only come under the spotlight again when the time comes for an implementation review.

Along with many others in the industry, Hobbs awaits with interest the outcome of ongoing European negotiations over Mifid II following concerns last year that a draft of the European directive suggested restricted advisers may be allowed to receive commission.

Connell agrees Mifid II will be a development to watch this year. Although the European Commission has suggested Mifid II is compatible with the RDR, he says given the current state of UK relations with the rest of Europe, the FSA should not be complacent in securing a comm ission ban for all advisers.

Connell says: “The European Commission is in the middle of all the recent high drama, with vetoes and talk of protocols for UK financial services. The question is whether, as a result of this, the commission may come under pressure to make life tough for the UK. This issue could become much more politicised than it has been up to now.”

This year will also move closer to the new regulatory structure to be created under the Financial Conduct Authority and the Prudential Regulation Authority.

Hobbs believes the Financial Services Bill, which will set out the new regulatory framework, will be a big issue. Following the publication of the joint select committee’s report into the draft bill shortly before Christmas, the emphasis will be on ensuring accountability of the new regulator is enshrined in law.

Aifa director general Stephen Gay says: “One key theme for Aifa this year will be how to influence the new regulatory architecture through the Financial Services Bill. This provides an opportunity to press for a regulatory approach which is more accountable and responsive to the views of our community and regulates in a way that is more economic and proportionate.”

Another inescapable area of reform this year is that of the Financial Services Compensation Scheme. The FSA aims to consult on the FSCS funding review in the first half of the year. The funding review was started in October 2009 but delayed a year later due to regulatory reform in the UK and ongoing development of the European investor compensation scheme directive.

Gay says the reopening of discussions on the design of the compensation scheme represents a key issue for Aifa to tackle over the coming year as well as the ongoing debate about the handling of Keydata recoveries.

Advisers are still smarting from a £93m FSCS levy a year ago to cover compensation costs relating to Keydata, as part of a £326m interim industry levy. The FSCS has already warned advisers about the prospect of a further £40m interim levy this year to pay for higher than expected costs for Keydata, Wills and Co and other stockbroking firms, while compensation costs for Arch cru and MF Global could push investment inter-mediation costs above the £100m threshold. Advisers have so far paid £30m in the 2011/12 year.

Connell says: “This issue has become so emotive, as more and more poorly run firms fail and then well run firms have to step in and pick up the pieces.”

After constantly being forced to pick up an increasingly expensive tab for other firms’ mistakes, advisers will need to make their voices heard about the future funding model of the FSCS. They will need to push for a compensation scheme that does not penalise the good adviser firms still left standing.


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There are 6 comments at the moment, we would love to hear your opinion too.

  1. And it goes on and on and on. This relentless progress towards the cliff edge is going to ruin many a previously profitable IFA practice, see more than the 10-20% of advisers leaving the sector and will have the most awful effect on the levels of retail investment take ups that in turn will damage our economy overall, less capital into the markets, less capital for expension, less jobs created etc, etc, etc.

    Sants and Co will be long gone as will Hoban, when the manure hits the fan and we will be left picking up the pieces.

  2. After we have fallen over this precipice and the consumer realises that they have to pay upfront charges for any investment advice, rather than factored commission over 5 years, how long will it be before ” Consumer Champions” start complaining that the average Joe can no longer afford financial advice. Will Joe then get the the IFA equivalent of Legal Aid or will we be expected to work “Pro Bono”

  3. Thanks Ned. although I agree with every word, I won’t be picking up the pieces.

    Anyone wise will be out of this industry by the end of the year. Pass RDR and they will hit you with something else.

    Sooner or later we must accept that although there is a demand for our services, we are no longer able to meet that demand at a price that anyone mortal is prepared to pay. Well done regulation.

    IFA’s have no divine right to exist. 2012 has been my epiphany. I no longer want to work in an industry whose regulation Kim Yong Un would be impressed by.

    The banks have won. By the end of the year there will be no HMV, no Millets and no IFA’s. Things move on, although not usually for the best.

  4. Re, chippy….I agree, I got out 6 yrs ago . Those left should build their trail to a high level as fast as possible then sell their clientbank for as much as others Will pay. If they don’t do this, they Will forever be at the whim of future attacks on trail

  5. The new year has just klicked in and the countdown has started, the pressure will increase on advisers,however the pressure will increase on providers as they consider life with a hugely reduced IFA salesforce dropping off. Trail commission will be the next issue in the coming months as providers notice a large reduction in business from IFA’s, so they will try to shut down these payments by writing to clients direct,they already have. Sadly the years of this industry shouting to the public : always speak to an IFA: means nothing anymore. Fee’s will work for a few but will kill this industry, these maniacs that are the FSA must be removed.

  6. The soon to be ex IFA 5th January 2012 at 5:48 pm

    Lol…consumers will not pay for a service they don’t value , ifa’s will either end up like the travel agents did when Expedia came along
    So you can either evolve or perish
    As for legal aid .. Well you are paying for MAS aren’t you, so if Ifa’s and banks don’t serve the mass market , all it takes is a higher levy and bingo.. MAS
    Starts offering advice. Add to the mix simple products and the ifa’s extinction cocktail is complete. Cheers to the FCA and 2013…may the best survive and for the rest of us it’s living off the trail book in leafy Surrey…till it churns.

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