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Alan Lakey: The RDR’s stated aims and where we are now

Alan Lakey MM blog

Just seven weeks into the year and the repercussions and inadvertent consequences of the RDR are already cementing into place.

Matrix Solutions recently announced that the numbers of regulated financial advisers fell by 15.4 per cent in the three months between November 2012 and February 2013. Those with long memories, like some of my fellow columnists, will recall that in November 2010 Sir Hector advised the Treasury select committee that an adviser exit figure of 20 per cent would be an “acceptable” price to pay for delivery of the RDR.

If 15.4 per cent of advisers exited over a three month period then what is the total figure since 2007 when the RDR horror first gained traction and clawed its way from madcap theory to sadistic reality?

We are all aware that figures lie, they’ve been misused and abused by each successive regulatory body to gain its own preferred outcome and rebuff any opposite view. These Matrix Solutions figures lie also inasmuch as they relate merely to regulated advisers.

What about the support staff laid off due to the experiment? What about the paraplanners, administrators, secretaries and trainees. What about the ancillary workers – book-keepers, office cleaners and temps. What about the knock on effects with accountants losing clients, husbands losing wives and clients losing their trusted adviser?

Sure, these appalling outcomes can arise naturally as a consequence of events when firms go bust, advisers move on or transition to other industries. What makes this Greek tragedy especially abhorrent is the infliction of theory over practice regardless of both the cost and the detrimental impact in human terms.

Like King Canute with waves and Norman Lamont with soaring interest rates, the regulator, with its simplistic theories and passion for change, will ultimately find that markets fail to function without the infusion of risk and reward. That without some form of financial carrot which energises and spurs individuals into action the business of finding new clients is made that much more difficult.

Of course, some advisers will prosper. Those who successfully focus on HNW clients and those whose business model is primarily mortgages and protection will carry on pretty much as normal. Some are developing low cost models to hoover up orphan clients and others are relying on aggregator sites to draw in the disaffected.

But what about the four aims stated within DP07/01, the original RDR document back in June 2007?

1) “That consumers are capable and confident”. The evidence thus far is that they are confused by the changes and the redefining of the concept ‘independent’. With the banks and building societies swiftly exiting the basic advice market the notion of confidence allied to capability seems further away than ever.

2) “That information for consumers is clear, simple and understandable”. Those consumers who manage to trawl through the initial disclosure document risk terminal boredom of the Eurovision kind.

3) “That firms are soundly managed, adequately capitalised and treat their customers fairly”. It is accepted that the RDR will result in increasing fees. The added regulatory cost burden on firms that thus far have managed to cling on will put paid to another tranche of firms.

4) “That regulation is risk based and principles based”. Well, the words ‘principles’ and ‘regulation’ should never appear in the same sentence.

To use the Treasury’s favoured reguspeak, there appears to be an increasing mis-alignment of regulators interests with those of consumers.

Alan Lakey is partner at Highclere Financial Services

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Comments

There are 32 comments at the moment, we would love to hear your opinion too.

  1. I can’t believe there are still some dinosaurs banging on about RDR even now! Look, it happened, move on, get over it.

    What the article makes no mention of at all is the many (thousands?) of graduates that over the coming years will look upon financial advice as a professional career offering, in a well-qualified environment and (for many advisers) offering attractive earnings levels.

    What is the point of this useless article above? It makes no suggestions how to work well within the new world. It harks back to an era that no longer exists, and for many investors failed them badly.

    Time to move on. Put up or shut up.

  2. RDR – Really Dumb Regulation.
    No doubt the most powerful quango in the uk will churn out some positive spin about how they rid FS of all those nasty little advisers, who deserved to be put on the scrap heap.

  3. RDR is a shambles. Banks and Building Socs pulling out of the mass market. Advisers only looking after HNW. What good has it done. Who in their right mind would even consider being an adviser now. In a few years IFA is correct dinosaurs look what happened to them wiped out

  4. Graduates should steer well clear of FS.
    Why study for several years gain a degree, then subject yourself to self serving bullies for the rest of your life. Note I did not say working life.

  5. IFA @ 9:00

    And who, pray tell, are these very well qualified graduates going to work for?

    Banks – nope. Small IFAs – I wouldn’t take anyone on at the moment no matter how well qualified. Big IFAs – nope – they’re all looking for well qualified experienced staff i.e. the one’s who’ve probably seen sense and have retired while the going was good.

  6. TO IFA – It is you and people like you who have encouraged this assault by Regulators on the industry, companies and many decent individuals they regulate. Many of have lost their jobs – suffered ill health through stress, been forced to spend time on regulation which denied that time to clients. This is not a case of dinosaurs evolving – it is a case of enforced wholesale change to a totally different industry over a very short period of time by unqualified regulators. One that clients and most of the industry never sort and the repercussions to the treasury and to consumer advice will be catastrophic. We should continue to bring home to those responsible the monster which they have created and which is sucking the life out of an important industry. We should attempt to change regulation in the future.

  7. Oh Dear!

    Another dose of tabloid sensationalism. I sometimes wonder if Alan was trained by the News of The World. That’s not to say that what he writes is not fascinatingly readable.

    But as he says himself all figures while not perhaps lying, don’t always present a full picture.

    What is the age group of those who have dropped out? What was their status? Employed? Network Members? Self Employed Sole traders directly regulated? Large firms? Small firms?

    Have they disappeared or have they become mortgage or general insurance brokers who are subject to a much more relaxed regime? Are they just confining themselves to life assurance? Have they become Para-planners or some such?

    The nature of business (and life?) is one of constant evolution. Look what’s happened to ICI, Polly Peck, British and Commonwealth, Slater Walker (all FT-SE 100 firms), not to mention innumerable life assurance and fund management groups that are now just history. Why is there an implicit assumption that things should go on forever unchanged? That there won’t be winners and losers and those who will prosper and those who will (unfortunately) get hurt.

    That’s life. (Darwinism). Live with it.

  8. Re – IFA – Getting over it is one thing, possibly losing your business due to the inadequate and poorly researched changes to the industry is another totally different scenario and having built up a practice for nigh on 25yrs to see it devalued and become virtually worthless overnight as a saleable item, I have to wonder at the sheer ineptitude of a regulator, tasked with protecting the interests of consumers and the market for financial products, bringing into being a system whereby the major portion of ordinary working families will no longer be able to afford our services, especially with the massive increase in regulatory costs and FSCS burdens.
    We are going the same way as other “professions” such as the legal profession whereby if you are well off and need advice you will be able to get it, if you are not, tough!

    Taking away consumer choice in payment methods is a grave error of judgement and the devastation being reaped in the industry will never encourage a “graduate” to take up FS as a profession. Any graduate with an ounce of common sense will steer well clear of FS with its expensive and useless regulatory regime, unlimited liability and the best target CMCs have had for decades.Now we find that nearly every financial product can be construed as “mis sold” a word invented by the media and of no use when deciding what to recommend as a course of action for investment and protection.

    The FSA did not even insist that QCF Level 4 contained an adequate protection qualification for advisers and relegated protection to Certificate level credits.

    Not withstanding that I have technically been fee based since 2003, my experience with hundreds of clients is that the preferred method of paying for advice was nearly always via plan charges over a period of time.

    The commision system had its flaws, but surely someone could have come up with a better solution than to alienate millions of consumers from taking advice and decimating the industry of perfectly competent advisers and ancilliary staff.

    I wish IFA every success in the brave new world, I will probably be checking out shortly, I am nearly 64 and this has changed my view of the value of what I do.

  9. Who is carping?

    Some of us have been shouting since 2007 that this travesty of an improvement will only result in negative outcomes. The article is nothing to do with moaning about the RDR but simply states the reality. Here we are eight weeks in and fund charges are higher, banks have withdrawn from the arena, advisers have left or been forced out of business.

    Do consumers understand what’s happened? Like hell they do.

    Are consumers better off? The HNW might be and a few of the middle layer but the great unwashed can’t even receive the undoubtedly low quality advice from the banks anymore.

  10. @ Harry Katz
    Darwin produced a theory.
    Much like the regulator did when putting forward its ideas on RDR.
    Alan is producing facts. Being happy with your lot, does not equate to what has been done, as fair.
    The regulator is still unelected and unaccountable and as such is as terrifying a concept as any historical or present day dictator.

  11. Whilst I cannot disagree with much of what Alan writes I do believe that we now need to move on.

    What Alan and other industry leaders and commentators should be focusing on is a regulatory benefit for those firms that survived RDR. Surely as well qualified fee charging professionals we should now have a lesser regulatory burden.

    Unfortunately the FS/CA seems to be of the view that we are all worse than ever, will break their rules and need ever more costly supervision.

    Regulators – you’ve had your fun. Now leave us alone to get on and plan our businesses. Guarantee that the current rules will stay in place for at least a decade. Give us some stability so that we can grow sound profitable businesses.

    This is what we should now be fighting for.

  12. @ Harry
    Darwin presented a THEORY, Much like the regulator did when putting forward the reason for RDR.
    Alan is producing facts. Being happy with your lot, does not equate to what has been done, as fair.
    The regulator is still unelected and unaccountable and as such is as terrifying a concept as any historical or present day dictator.

  13. Don’t lose your temper Alan lol

  14. “What makes this Greek tragedy especially abhorrent is the infliction of theory over practice regardless of both the cost and the detrimental impact in human terms.”

    This has happened before … ‘comprehensive education’ was actually an experiment, which, through political dogma (Labour and Tories), was imposed upon the whole country, whilst the third ‘technical’ education stream was left to wither on the vine and is only now, some forty years later, being resurrected via ‘academies’.

    The carnage that ‘well-meaning’ politicians and bureaucrats can wreak is truly awesome.

  15. The more I read from Alan the more I worry that he is held in high regard in the industry.

    Make CIC slower to get accepted, swear at providers, get struck off from providers, provoke provides by publicly slating them and now writing “News of the World” journalism (great explanation)

    How much longer can this guy be taken seriously – he is an outspoken, dangerous man to be held in high esteem.

    And to have IFA’s calling the public “the great unwashed” is so disrespectful I wont even get started on it.

    IFA’s are a dying breed, RDR or no RDR – and Alan is a shining example of why in 10 years only HNW families will use them.

  16. @worried onlooker
    Get real – you are obviously more than that.

  17. Nicholas Pleasure 25th February 2013 at 12:24 pm

    Like many, I don’t like Alan’s tone or whining. However I think articles like this are an important reminder of what the regulator has done and the reasons.

    We need to ensure that the RDR is kept under review and that its failures are accurately documented.

  18. Unfortunately, like many of the larger businesses in UK Plc, the penpushers at the helm simply reduce the scale of operations to fit the diminishing bottom line, rather than pushing back. I spoke with one large insurer today, who had cut their broker operations staff from 80 to 11 already..That is more than 20% for sure.

    IFA (9.00 am?!) earlier talked about getting on with it, unfortunately they may find that this becomes untenable due to overhead within the industry (regulators and quangos do not tend to sack themselves) and as for the long-term future, I would not wish to see my children anywhere near this industry thank you very much, that after 25 years of building my practice..It is OK for me, but has little future for them, especially with its back to front process of encouraging cost-free complaints from all and sundry, spurious and manufactured as they are in many instances.

    The public will soon realise that not all professional firms (and I include the likes of Solicitors and Accountants) have bottomless pockets with which to fight their corner against the rising cost of being regulated.

  19. How is the guy “whining”? Also, his tone seems fine. To me he is simply pointing out to the head in the sand brigade that all is not well and the RDR has not solved problems.

    In fact, it looks like its created plenty more

  20. Its the 25th February. I think its more than a little too soon to be drawing conclusions.

    RDR may not be perfect, but by denying that change was necessary would be to ignore the way our industry has limped between scandals for the last 30 years.

  21. “husbands losing wives” ?

    Come on Alan; explain how the RDR is the catalyst for marital breakdown.

    Also, stating that “the words ‘principles’ and ‘regulation’ should never appear in the same sentence” is never going to help reinforce your message. I would no more use a sweeping statement about regulators, than I would against IFAs, women, the disabled or people of a different ethnic origin. Whilst there have clearly been issues at the FSA and noting that the RDR may be as flawed as were the introduction of:
    > commission disclosure and the new illustrations in 1995; and
    > the fee option and (more) new illustrations ten years later,
    I don’t think that such aggressive language will help you win your argument.

  22. @Harry Katz:

    “The nature of business (and life?) is one of constant evolution. Look what’s happened to ICI, Polly Peck, British and Commonwealth, Slater Walker (all FT-SE 100 firms), not to mention innumerable life assurance and fund management groups that are now just history. Why is there an implicit assumption that things should go on forever unchanged?”

    ICI, B&C and Slater Walker disappeared due to free market forces. Polly Peck was the victim of fraud and is not really relevant. Alan Lakey is talking about businesses being shut down by the state. The difference between the two is the difference between evolution and eugenics.

    And I realise I’m playing the Godwin card, but everyone knows that even the lowest-ranked card is occasionally the correct one.

  23. “Businesses being shut down by the state” More tabloid sentences.

    Oh do come off it. No one has been shut down willy-nilly. All you had to do was get qualified and be transparent about your charges. You were given ample notice (even if you were too dull or idle to realise that these were going to be requirements years ago). So those that ‘had’ to leave actually committed professional hara kiri.
    It is still too early to judge either way, but for every doomster there also seem s to be an equivalent number who are being cautiously optimistic.

    Me? I’m neither. Completely agnostic. I also realsise that there is plenty that the Regulator has either failed or cocked up on and that the Canaries are a very long way from perfect or competent. But as others have said it was high time that certain aspects of this business were cleaned up. I look back and recall some of the absolutely horrific practices that were commonplace that are now consigned to history – thanks to regulation.

    Being a bit slow I don’t follow your lowest ranked card analogy either.

  24. Well said Sascha.
    Wait for the next state closures when advisers cannot meet the new capital adequacy rules.
    Harry, you are beginning to sound doddery.
    Perhaps it is time you gave way to the new model wealth managers.

  25. Alan, I do think you are always looking backwards rather than looking forwards RDR regulations were designed primarily to encourage future behaviour and firms that have chosen to become qualified have already adapted to this new environment.

    The problem with most of your analysis is that you are looking at financial services like a dinosaur sitting in the 21st century and asking for the clock to be turned back 2 million years.

    Instead of thinking about yourself and your fellow dinosaurs you should start thinking about the consumer.

    One thing is interesting in the first seven months of RDR is how the regulator has not clamped down on lead generation firms. Surely these firms can no longer operate in financial services as they don’t hold SPS certificates and certainly should not be advertising free financial advice.

    Instead of whingeing about RDR maybe we should be using the regulations to our advantage and insisting that the regulator in force RDR regulations to the full including advertising.

    I’m not asking for anything apart from a level playing field and that includes clamping down on companies that give financial advice through the written word and then get paid for clicks without holding the correct authorisation. E.G money saving expert.

    So come on regulator you created these rules now enforce them fully including a clampdown on accountants and solicitors operating wealth management services without authorisation from the FSA.

    I want the new world and I want it now we are seven weeks in and these firms have not been closed down.

  26. as a consumer/client I would say RDR was enivitable due to the constant abuse of the general public by under qualified, over paid, second hand car salesmen in suits – AKA – financial advisers.

    To pass a few basic exams, and level 4 is basic, and be given 5 years to do so should not have caused any issues for those people who think they are professional.

    To pay a fee for advice is quite acceptable, we will pay, and we will shop around.

    The proposed advice charging rates are ridiculous and only supported by the self interest of those concerned. The probability is that those rates will fall.

  27. The principal idea behin RDR is a valid one but it is the implimentation and method of doing so that is flawed in my view.

    It will undoubtedly cause some to lose out on valuable advice and it will not stop people being sold or advised to buy orm invest in unsuitable products though hopefully it will reduce them but probably as much by the fact fewer will be taking advice and more will be doing it themselves online.

    If that is progress then so be it but for me it could be so much better.

    The biggest failure by far is by Governments and regulators and that is going to cost us all far more than RDR and it’s effects or indeed what it has been put in place to correct..

    A similar operation for Government would be the best place to start.

  28. RDR is here and Alan has a goog point in
    Looking back to measure the success of RDR.
    We will get a better idea at the beginning of 2014 regarding adviser numbers with I expect a reduction of about 25% in the pervious 2 years, some commentators will think that is good and some a bandoutcome.
    My concern is an unintended outcome is that with a 25% decrease in FSA fees due to these advisers no longer being authorised will our regulation costs increase by 25% to make up the shortfall along with FSCS liabilities.
    An increase of 25% in the regulatory costs may force additional firms to de-authorise!!

  29. To A Consumer,

    If consumers did actually approach IFAs for advice which could be given like your GP or Chiropodist verbally or practically and would not involve me in putting my head in a noose with all the written confirmation required by the Regulators and consumer bodies I would willingly drop my hourly rate. The fact is that the costs of regulation including FSCS FOS MAS PI (before the costs of running a business for a sole trader) are the prime reason why costs are high. Blame the Consumer so called champions and modern regulation – and less of your insulting comments about IFAs please who have done little to deserve them.

  30. To Anon 27 Feb 09:47

    And who can argue with his comments concerning exams?

    Furthermore I have also seen some of the charges levied and again can’t disagree. But I do think he should have been less generalistic, but then one can’t expect too much.

  31. “I can’t believe there are still some dinosaurs banging on about RDR even now! Look, it happened, move on, get over it.”

    Strange after such a short period in time that you can become a dinosaur.
    Lest we forget was a well known term after world wars.
    Lets not forget that a lot of people have lost their livelyhoods through RDR we are the fortunate one’s it’s so easy to say sod you Jack I’m alright and to try and fathom out as to what good has come of it to consumers and advisers alike is beyond me.
    I wonder if some will still have the same opinion at the next RDR especially if they are the one’s affected.
    On reflection there are a lot of people out of work, a lot of clients no longer getting advice and regulators trying to justify their existence along with fat pay packets to decimate 1 of our few remaining successful businesses.

  32. My daughter is due to graduate this year. I have told her, and her friends, that they should steer well clear of the financial services. There are too many regulators lining their pockets at the expense of those at the coal face. I actually hate my job now, not merely dislike it, or find it unsatisfying. The whole profession is tied up in red tape and pen pushers. Its depressing.

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