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A common sense approach to RDR?


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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There are 30 comments at the moment, we would love to hear your opinion too.

  1. This is far too simple. The FSA would probably want this document to stretch to 20 pages to ensure that clients could understand the concept!

  2. Admirable but unfortunately unachievable for the same reasons they won’t abandon RDR.

  3. Richard, this is awesome. Its clear, concise, simple and even a board member of the FSA could understand this if he or she was at an initial meeting with an IFA as a potential client. I commend you for this. Now you should send this form P5 to the FSA and request a meeting with them to ask for them to demonstrate how or why this wouldnt meet RDR requirements. Even they would struggle to come up with something. They could save face, we have a common sense approach that is affordable and the client is in no doubt as to who we are, what we do, how they want to pay us – all before we do any work or client pays a penny. Brilliant

  4. I am one of those advisers who is considering leaving the industry. Although I will be in my 60’s by the time RDR is in place. For the life of me I cannot understand why the FSA don’t cap commissions. All investment products at the same rate etc etc. This would remove any commission bias in one stroke.

  5. Very good work.

    Go to the FSA and see if you could get your local MP involved too?

    Great cost cutting measure to save £1Billion or so moving forward. I would love to see the little faces of FSA when all these costs could be addressed by your process and two sides of A4!

  6. Richard’s attempt to simplify the disclosure process is admirable.

    It is though a pity that the anecdotal tale of the Chartered Financial Planner is used here, Can you imagine the vitriol of some of the readership if such an example was put forward by a highly qualified IFA about a less qualified adviser?

    Question for Richard did you put this to the FSA during the very protracted consultation phase and if so what was their response?

  7. Congratulations Richard a very good document and i can see it working!! If only ……….

  8. I am not a defender of the RDR process, but this form looks a bit like something from home insurance times. It’s just a tick list with a signature at the end of it, which everybody hopes will solve all of our problems (not).

    Not only should the FSA get real but also the writer of this article. The problem with the industry is that we have too many individuals with far fewer ethics and thus we have reaped what has been sown.

    I came across client recently that had been sold and investment bond with 7% commission with little justification. I thought that this behaviour had gone out of the industry a long time ago and may be what needs to happen is a standardisation of commission overall product ranges rather than just banning it. Not convinced that commission banning will help the low paid get independent financial advice. But if commission is to remain then there needs to be standardisation to stop product led advice.

  9. Oh Richard,
    Doomed to failure I’m afraid. It’s just far too sensible!! If implemented it would result in hundreds of job losses… the FSA.

  10. Jennifer Nicholls 19th October 2010 at 11:53 am


  11. Yet again a prime example of a common sense approach which is focussing on meeting the needs of the customer not surprisingly this has come from an IFA who is dealing with clients on a face to face basis daily as opposed to the complicated unworkable and ultimately costly proposals that the FSA are trying to implement.

    The FSA / Regulators really need to take a serious look at this and maybe for once consider the opinions of the industry rather than just spending money on unworkable proposals that will in the long run detract and deter consumers from seeking advice…

    It gets my vote ….

  12. Simple, concise, understandable and effective. For these reasons alone the FSA would never adopt it.

  13. “It would be disingenuous to assume that the FSA does not conceive its initiatives with the best intentions.”

    In this context, I’m not sure disingenuous is the right word. I believe the FSA itself to be fundamentally disingenuous, for which just two dictionary definitions are:-

    “not straightforward or candid; giving a false appearance of frankness” Or

    “Not noble; unbecoming true honour or dignity; mean; unworthy; fake or deceptive; not frank or open; uncandid; unworthily or meanly artful; Assuming a pose of naivete to make a point or for deception”

    To describe the way a significant proportion of the IFA population feel about the FSA, perhaps cynical would be more appropriate. The list of reasons is long and has been covered amply on many other forums.

    To Nick Bamford ~ The FSA doesn’t even acknowledge let alone stoop to responding to submissions to their consultations. What they tend to say is that they’ve “taken on board what the industry has said”. This, I think, is a pretty good exampleof disingenuity, given that in practice, what it really means is that the FSA ignores everything and anything which doesn’t accord nicely with their predetermined agenda.

  14. Reply To Nick.

    No Nick. This is simply born out of concern that the RDR, as is, works counter to the interest of the consumer and has a better than 50% capacity to deliver a cataclysmic outcome for the industry. The subject of adviser qualifications is vital and should be complimented by the same simple, common sense transitional approach without vested interest. It does not have to be like this.

    I accept your comment regarding the CFP. The point is that qualification does not confer professionalism. I would be happy for any comments to be made to any advisor irrespective of title if there was a blatant lack of professionalism, as it impacts on us all.

  15. Cap commissions is the simple answer as far as I am concerned.

  16. As a client if I completed this form I would know

    1. The basis of advice is ‘whole of market’ but I doubt many adviser could evidence they have met the test of ‘from the whole market place’ for each client without prohibitive costs

    2. That I’ll be charged in one of three ways detailed in a separate document. It is what the second document says, and how it says it, that matters. If the form and content aren’t standardised how will I compare between advisers?

    3. That I’ll receive some services, also detailed in a separate document. Again how will I compare?

    I don’t see how this helps the client understand what they are getting at all.

  17. Great form Richard and I might start using it anyway.
    The only way the industry could use this and abolish RDR/FSA is to also have a maximum commission agreement.
    Most of our business is customer agreed/fee based but nevertheless we do have an MCA which our clients are aware of.
    Our typical fees equate to 1.5% plus 0.7%pa. It’s not rocket science but who else will call for it – certainly not the insurance companies/banks.

  18. “I accept your comment regarding the CFP. The point is that qualification does not confer professionalism.”


    I don’t think anyone would argue with you there. It is, however, important to note that not all advisers who work for chartered firms are themselves chartered (you only have to look at the Bank of Scotland as an example). It may well be the case that the individual providing the advice was qualified to a much lower level.

    Regardless, countless examples could be provided on the flip side showing utterly dreadful advice provided by poorly qualified IFAs. I’ve seen numerous cases myself over the past 3-4 years, where substandard advice has been provided by local IFAs with 30+ years of experience. So experience isn’t the be-all and end-all either, as some advisers would have you believe.

    Ultimately what’s required is a combination of both experience and qualifications. Sadly, it seems that many advisers are simply unwilling (or unable) to bring their technical knowledge and qualifications up to scratch.

  19. Come on IFA’s. Stop grousing between each other. The FSA are the common enemy with this monster RDR. I applaud Richard’s efforts. professionalism, empathy with your clients, profitability of your business and enjoyment of the job should be our guiding principles. The FSA should regulate not dictate how we run our businesses. This will allows us to create proper choice for the client. Richard’s form follows this principle and will allow the client to choose to deal with a variety of firms from the younger super qualified IFA employed by a larger IFA company through to a well experienced elderly sole practioneer IFA. Let those of us who are over 60 post 2012 continue to do the job we love as professionally as we have done in the past. Ultimately the client will decide.

  20. Steven Farrall (Adviser Alliance) 19th October 2010 at 3:36 pm

    The RDR will modernise the industry To ‘modernise’ is political class code for capturing the aganda for its own ends. The FSA must be seen in this light. As the provisional wing of the politcal class. Even if this were not the case it is utterly risible that one small group of bureaucrats holds itself out as possessing unique and Godlike wisdom as to what a ‘modernised’ FS business should look like. There are millions of entrepreneurs out there all looking at this every second and making well judged estimates as to what will best satisfy the needs of the client and produce a profit. The FSA has no way of getting into the minds of these people and their clients and assessing how they value things. It is just more evidence of arrogance and unaccountability and its essentially socialist/totalitarian philosophy.

  21. 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.

  22. 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.

  23. 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.

  24. 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

  25. 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?

  26. 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.

  27. 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.

  28. 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.

  29. 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.

  30. 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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