I am writing to you as one of your constituents and as a chartered financial planner and fellow of the Personal Finance Society. I am gravely concerned for the future of my profession, about the public’s access to advice and my own ability to feed and clothe my family beyond 2012.
There are fundamental flaws in the FSA’s plan which must be addressed before the RDR is implemented or consumers will suffer. I stand with the FSA on many of the tenets of the RDR – a higher standard of qualification, clearly defined service propositions and client-agreed remuneration – but the FSA has got it catastrophically wrong in dictating how I can be remunerated.
I am not bemoaning the removal of “commission” nor am I defending opaque product charges I am challenging the ill-thought-out alternative known as adviser-charging. I can see only two outcomes, neither of which seems palatable.
1: Should adviser charges be administrated by the product provider (as it is in the majority of cases) then if this model continues after R-Day, there are significant penalties for the client. For example, to pay adviser fees for ongoing service for a stocks and shares Isa, what was commission becomes a withdrawal, effectively reducing the client’s tax-privileged funds. For a non-Isa collective investment, commission become a withdrawal which is in turn a disposal for capital gains tax which uses part of the clients annual CGT allowance. Multiple funds and products with monthly disinvestments to pay for adviser costs equates to multiple CGT disposals = a significant level of complexity not before seen. There are other examples related to Life Insurance Investment Bonds, pensions and VAT, all examples negatively affect the client through reduced allowances, an increased administrative burden and inevitably increased cost.
2: If an adviser feels uncomfortable in actively promoting the above penal approach, this leaves only one option – to ask the client to pay for your services out of his income, to choose to allocate part of his discretionary spending to pay for financial advice. This will not happen in the majority of cases.
Clients have had a choice to pay by an invoiced fee, paid out of their income, for over five years and elected against it in all but a handful of cases. This is about choice and the RDR is removing choice to the detriment of consumers by dictating to them their options when paying for advice. I can think of no other profession or industry where such Draconian measures have been imposed which curtail options, increase their costs, and increase their admin burden and all in the name of protecting them?
The RDR equals job losses. In January, Barclays announced it is to close its adviser arm with potentially 1,000 job losses. Last month, HSBC declared 650 jobs are to be lost when it closes its tied advice arm. My fear is that if such big companies with all their resources do not feel it is commercially viable to continue to offer this service to their customers, then how are small firms going to be able to continue?
As we career towards the RDR with a forest of known unknowns still ahead, I find myself asking, how can this be? Is it feasible that the FSA did not conduct a critical path analysis of the possible unintended consequences?
Chartered financial planner and fellow of the Personal Finance Society