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Advice around the world: Has regulation held UK advisers back?

RDR has helped bring more transparency to the market, but the landscape is still burdened with slow-moving legacy issues

UK advisers are not alone in having their businesses shaken up by regulatory change in recent years.

Changes to the way advisers charge their clients and run their firms have impacted several advice markets worldwide, with positive and negative ramifications.

Commentators say a small number of established markets continue to lead the global conversation around financial advice, but they face challenges with how to progress the sector globally against a complex political backdrop and amid rapid changes to technology.

Money Marketing looks at how the UK advice market is developing compared with its peers in Australia, Asia, Canada and the US, and the
political and regulatory challenges facing our adviser community.

State of the nations

Figures from international body the Financial Planning Standards Board show there are 170,101 certified financial planning professionals within its 26-country membership, which includes Australia, Canada, New Zealand, the Netherlands and the UK.

In Australia, the Future of Financial Advice Reforms, introduced in 2012, have aimed to better align the incentives of clients and advisers. While in Canada, advisers have been working under the Client Relationship Model – Phase 2, also introduced in 2013.

Commentators agree that, while the RDR has improved integrity, better practice, and the level of education for advisers, the cost of advice in the UK has increased, and transparency around pricing and performance is not matching standards in Australia or Canada.

Chartered Institute for Securities & Investments financial planning head Jacqueline Lockie says the UK market is also affected by legacy issues, in terms of books of business and technology, which do not impact advisers elsewhere.

Adviser view: Yvonne Goodwin, Managing director at Yvonne Goodwin Wealth Management

“Our regulatory costs have increased substantially in the past five years as a result of the seemingly thousands of investment scams and UCIS that have been peddled to consumers through some advisers, and subsequently gone pear shaped.  Increasingly, I feel we are acting as protectors of our clients’ wealth. I do fear there is a way to go yet as I am sure there are still various schemes out there where their worthless nature is not yet understood by their investors.”

Lockie says progression for the UK as a global leader of financial advice could be stumped by new entrants from Asia, where legacy is not such a problem. For these new markets, the historic lack of trust within the sector evident in the UK and other established international markets, might never be a hurdle to overcome.

She says: “The UK is ahead of manyothers, but there are areas where we are still lagging. Other countries where regulation is relatively new will and do benefit from discussions between the world’s financial regulators. It is likely they will learn the lessons from problems in the UK and other countries so the public is better served, and the misselling issues that have happened in the world’s more developed financial services countries don’t happen there.”

However, the UK does have a leadership role to play, particularly following delays with the implementation of Mifid II in Europe and the
fiduciary rule in the US.

Indeed, the more nascent advice markets are increasingly expecting the UK to lead the charge after Brexit.

Lockie says: “In the US, they have just introduced a fiduciary requirement to put your client first, but if you go back 15 years, the US would normally be 10 years ahead of the world. A lot of regulators around the world are now looking to the FCA to see what they are doing. RDR really has had a positive impact on the UK advice market by helping the public see how they are paying for the
advice they seek.”

However, the post-RDR environment has not all been smooth sailing, and Lockie says there have been continual issues with policy development in the UK market, including those around implementing Priips regulation. She says such problems “do not help the public have confidence in the advice they might see”.

She says: “Mifid II, along with other pieces of legislation, have had an impact raising the regulatory burden and costs on firms, and this has had the biggest impact on smaller firms. It started off great, but as more things have developed along the way, particularly with the Europe angle, it’s realistically increasing the regulation for advisers here.”

Adviser view: Mark Meldon, IFA at Meldon & Co

“RDR has been a detriment to many consumers because it has opened the gate to anecdotally extortionate fees, particularly with DB transfers and the increasingly prevalent use of DFMs. Some fees seem to be a whole lot higher than the bad old days of commission, and a lot of advisers seem to treat fees as proxy commissions. What I have a problem with is people taking ongoing fees from portfolios and exercising no discretion. They are not doing very much because they have outsourced it to someone else, and are raking in lots and lots of money for not doing a lot. Most other

Finance & Technology Research Centre director Ian McKenna says the process for passing the fiduciary rule in the US market, which was kicked off by the Obama administration, also faced the hurdle of political changeover.

However, overcoming that has placed the US advice market in a stronger innovative position than the UK, where McKenna says rules are sometimes viewed as “stifling”.

He says: “In the US they are getting along really well with innovation because they are not constrained. A lot of companies had already spent the money to put the infrastructure in place to act as fiduciaries. In the UK, we may have gone slightly over the top, and other nations who have followed the lead might have come up with more pragmatic solutions to
industry problems.”

In Canada, regulation is focused on fixing ambiguous communication, and CanScot partner Robert Reid says that following this example could have avoided bringing in a regime like Mifid II.

He says: “Every country is wrestling with the idea of disclosure, and [the UK] has got it reasonably OK, but Canadians have got things better.”

“Everyone has moved forward in slightly different directions, but they’ve all come to the same point. The big difference between the UK and Europe is that there is only one other comparable market, which is the Netherlands. There are more bank and insurance company controlled markets in the EU, and that’s where Mifid II is running into problems, because they are different markets with the same regulations.”

Digital advancements

Where adoption of, and adaption to, technology comes into play, McKenna says there is a concern that Europe cannot move regulation quickly enough to advance into
digital advice.

He says: “It takes seven years to get EU regulations, and the slow speed at which the EU moves may hamper advancements. Technology and advice is driving an unparalleled level of collaboration between regulators, and the question now is whether Asia is so powerful that if the Americans and Europeans keep themselves away from the table, they will just miss out, and the standards
will be evolved with the nations that are there.”

Even with the strong position of the UK in the international advice market since RDR, Lockie says new developments in advice delivery will need to address outstanding issues still prevalent here, including sentiment around pension planning, consumer education and industry engagement.

She says: “Despite all this change and regulation, all those same
challenges remain. It’s a general
issue of engagement.”

Iain-Anderson-MS-CUTOUT-250x255.jpg Expert view: UK advisers in a strong position post-RDR

What the FCA has done on the RDR has been looked at significantly by the European Commission, but also by regulators in France, Italy and Germany, where the markets have a deep bancassurance link. The reason we haven’t seen a wholehearted take up of what the UK authorities have done with RDR is because the structure of those markets really remains bank-dominated, and those banks have been good lobbyists in keeping the distribution channels they have.

Beyond that, US regulators have looked at Canada’s RDR-type principles, but because the nature of the two markets is so different, it’s not easy to provide a direct read across. I don’t see the principles the regulators are looking at in markets like Australia and Canada translating into other European markets.

Globally, with regulation, you inevitably move at the speed of the slowest nation, and there’s been an inability for Europe to move fast on many important issues. This is causing a lot of caution for advisers, driven both by regulation and the broader economic environment, particularly in the UK.

Every market has trust and legacy issues, it’s just a question of the degree to which
they exist

The advisers that have powered on through the RDR process and have adapted their business to make it work, however, are doing well. There is still a lot to do, but in terms of getting good professional financial advice, the UK remains in a very strong position since RDR.

Every market has trust and legacy issues, it’s just a question of the degree to which they exist. I think just as regulators internationally have looked in on the FCA on the RDR journey, there are lots of lessons being learned outside the dynamic of the UK market that Asian markets bring to the picture, especially in markets such as Hong Kong and Singapore, where the Monetary Authority of Singapore
is a very tough regulator.

Iain Anderson is executive chairman at Cicero Group

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. If you mean has it held the likes of Trevor Deaves, Roger Levitt, Allied Crowbar and Scabby Life back – yes, thank goodness it has. Unfortunately there arte still some murky corners left.

    It isn’t a matter of what regulation has done to advisers, but what it has doe for clients and in this respect I think it has helped them.

  2. Whilst I agree RDR has worked, it is for the selected few and wealthy. The lower end of the markets, those in most need of help have in the most part been abandoned.

    The banks have pulled out, advisers can no longer afford to service (especially since 3rd Jan and MiFID11) those with limited funds.

    I do welcome well thought out regulation, unfortunately this is often lacking. As for the media and their only wish to report negative outcomes (bad news sells), this is a very big issue and has a massive negative impact.

    Old book business if being managed will be switched when correct to do so, as the new products become cheaper and more efficient. The issue being the companies themselves have to continue to service these old books, many of which land up being purchased and poorly run.

    Regulation in the main has seen positive effects, but also some major challenges and poor outcomes, especially for the lower end of the markets. The lack of consistency, clear rules and outcomes acceptable, will mean PI Insurers will leaving the market. The FOS not having to work to the rule of law, Caveat Emptor being a thing of the past, mean no insurer will be keen to undertake such liability.

    The future is bright for those with either wealth to pay for advice, or the intelligence to understand and arrange themselves. The rest are doomed as they do not understand, cannot afford to pay and telling them to go on line and read is not going to happen. The positive for regulation being there will be less complaints about poor advice, which will make their figures look fantastic, when measured against this target.

  3. RDR has been a catastrophic failure……

    For the odd few positive points that it did achieve, has been completely swamped by the unintended consequences that have followed….

    Firstly, the closed gate mentality, this sent a message to the crooks, and those not intending to stay; sell as much as possible for as much as you can get (fill your boots) while you can, and the nett result is our clients are paying a high price for this now.
    Secondly, the cost for advice has shot through the roof, because the industry having to pay for the cost of the RDR, increased levies, increased regulation costs (FCA, MAS, FOS, FSCS), increased compliance cost, and a massive increase in man hours to deal with burdensome regulation and the process and paperwork that goes with it !
    Thirdly, competition, product innovation, and smooth running are all non-existent.

    Fourthly, Scams… I really don’t think I need to expand on this one !

    Well done (clap clap clap) Well done …

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