The speech comes as many FSA officials have been making conciliatory noises about IFAs and the RDR and say it is in listening mode.
This begs the question why didn’t the organisation listen to IFAs before the RDR was published. But if a genuine change of tone accompanied by a desire to find a workable compromise is offered, then advisers should seize it.
The cynics may suggest that the industry has fallen victim to an age old tactic employed by politicians and officials looking to reform a sector or indeed a country.
This runs along the lines of proposing something akin to Armageddon as a negotiating gambit, then having frightened everyone witless, offering a middle way which is then gratefully acceptedDid something like this happen here? The prudential rules paper, in particular, suggested that if adviser numbers shrank as a result of capital adequacy changes, it would not necessarily be a bad thing.
But if, initially, the regulator was relaxed about the fact that the RDR would provoke an extreme reaction and get advisers worried, I am not so sure they expected it to be quite so extreme.
I sense the regulator was surprised not just by the strength of feeling but also by many advisers and adviser leaders saying changes on this scale were not only unachievable in anything like the time being envisaged but many advisers would simply quit.
It is also significant that this is Hector Sants’ first big speech on the issue. If Sants’ thoughts have not been focused on Newcastle recently then he has not been doing his job.
I would argue that it is not just events that have overtaken the FSA with Northern Rock, it is events that no regulator could have reasonably foreseen. But whoever is wrong or right, it has been taking up the vast proportion of management time and so it should.
So Sants has not had much time to focus on the RDR. He may be bemused that the sections of the paper on charging models might have as well have been a cut and paste job from what the ABI submitted or he may agree with every word of it as a commissionphobic through and through.
But he is confronted with a sector in a state of flux, with his organisation responsible for much of it. If he offers compromise, it would be folly to reject it out of hand.
The grim reality of this whole debate is the FSA is not supposed to act arbitrarily but fairly and based on evidence. With Treasury backing, it could still behave unfairly.
But the FSA may move to a reform, which while being a pain in the collective derriere for the advice industry, is not so bad as to drive good IFAs out because it is sensibly costed.
No one suggests that advisers should abandon their critical faculties or stop pointing out mistakes, unintended consequences and pointlessly expensive changes which benefit no one but increase the cost of advice. But an RDR version two may be emerging from the likes of the CII and some big life offices.
Two notes of caution. There is a need for a proper debate about what independence means. Many IFAs continue to use the title with pride and indeed base their whole ethical position as an adviser around it. But an olive branch on this from the FSA, is not, I would argue the prize advisers should be looking for.
Finally, any change in stance from the top man in the FSA should be treated with caution. Howard Davies once promised no retrospective reviews. The FSA may well have made good on this but the ombudsman in most advisers’ views continues to ply its retrospective trade.
It wasn’t Sir Howard’s mind that needed to change. In this instance at least it is the FSA’s review. So I suggest that by all means advisers should engage, but until they see something in black in white they should continue to keep a wary eye on the worst case scenario they were confronted with back in June as well.
John Lappin is editor of Money Marketing