The paper passes one very important litmus test. When the first RDR and prudential papers were published, I was invited on a number of roadshows and conferences with IFAs. On one of the Bankhall roadshows, I met a couple of advisers who said they had moved their business models to a place that was best for their clients and close to the sort of model the FSA wanted them to follow. “We are 90 per cent there,” they said.
Yet as they sat in a hotel bar in Hampshire, one of them expressed some very serious concerns. Under version one of the RDR, he said that he would be forced into a firesale, probably to a chartered planner, because he did not feel he could manage the exams on time while continuing to run his business. In effect, he felt that the FSA was considering taking away part of his retirement fund. Thankfully, that is not the case today.
What this interim paper sets out is a workable solution for the market. Yes, qualification standards will need to improve and many advisers will moan as they are pushed towards diploma level over the next five years. There may also be a system of assessments on the job. Not all advisers will agree but I think this is achievable.
Some form of customer-agreed remuneration remains and this will require grappling with but it does not feel like the FSA is throwing a giant spanner into the advice works. You can – admittedly with some effort – remain IFAs. However, if you decide that more qualifications or changes to client payments are not for you, you will not be forced into a firesale of your businesses. The way is left for a dignified exit.
Regarded in these terms, the paper is a triumph for the IFA lobby. Most of all, credit falls to Aifa. It is an example of principled opposition combined with engagement around the Manifesto for Advice.
The fly in the ointment is the lack of FSA agreement on a long stop but that advocacy can perhaps wait for another day.
There is another organisation that deserves praise. The FSA made some rather bold assumptions in the first papers, in particular surrounding capital adequacy. Indeed, it held out some quite naive hopes for using personal indemnity insurance to achieve certain outcomes which a free PI market would have found very difficult to deliver economically. The industry called on the FSA to present its evidence as an evidence-based regulator.
To its credit, the regulator asked two consultancies to find the evidence. Those consultancies found no evidence and the FSA has dropped the proposals. When FSA officials including Dan Waters, Amanda Bowe and Alan Mason said they were listening, they were listening.
Professional standards bodies may be disappointed. Money Marketing was always wary about where the alignment of interest lay with these organisations, which was ironic given that alignment of interest was one of the FSA’s big themes. They must now turn their attention to getting advisers up to speed as quickly as possible. A rise in qualifications is good for everyone while the voluntary move to chartered status for firms remains an excellent incentive to increase standards.
No one should get too carried away. This is an interim paper and an interim triumph and no doubt opposition forces are mustering their arguments.
Bank multi-ties and shall we say “independent” multi-ties will not want to see their practices described as selling. St James’s Place has already made some strong arguments round this. It can point to high standards and in some respects excellent technical expertise available across the group. However, along with some other multi-ties, it must answer the trail question. Why does trail not transfer to another adviser if a client wishes to move to an IFA for advice on the SJP managed assets?
In a world of confusion, consumers need to be clear about this from outset. From the outside – and Premier Wealth Management’s Adrian Shandley was making this point last year – SJP feels like a tied salesforce because it will not transfer ongoing payments for advice. This needs explaining and seems to fit awkwardly with FSA plans for reforming remuneration although there may be examples in the IFA world, too.
Yet any idea that multi-ties should be knocked out of the market is wrong-headed. Savings rates are low enough but it may be time for more transparency in the burgeoning multi-tied sector.
However, the banks and several life offices must be fuming. In my opinion, they stitched up the process for themselves by overstating the problems in the market and dumping the blame on advisers. By sharing the blame, better solutions could have been found.
By imposing so many restrictions on IFAs, banks looked set to steal massive market share. This seems a pretty foolish exercise in hindsight. A fierce attempt to go back to version one of the RDR may similarly backfire – Association of British Insurers and British Bankers’ Association be warned. Under the changed proposals, if banks want to take market share from IFAs, they may have to do so as IFAs. In that case, good luck to them but they will not do so by playing some sort of regulatory arbitrage.
If all parties are wise, a sensible debate can occur about reaching the mass market with insurance and savings products. IFAs should not pull up the drawbridge behind themselves and the mostly well-off baby boomers who are their clients.
Clearly, there is only so much that can be done with distribution to achieve a good outcome. Much depends on the Government, too, and that has unfortunately been the most unreliable participant in the savings debate until now.
I believe that advisers have to engage with the RDR. To be seen to behave as if they are off the hook would send the wrong signal. Debate the details and consider the options for your businesses but don’t crow, despite all the original unfairness. To do otherwise will only put more power in the elbow of those who will be trying the swing the RDR pendulum back in their favour.