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