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Beware the RDR bulls

There’s an I’m all right Jack nuance to much of the commentary in these pages about the impending retail distribution review. Whether or not my own firm feels well placed as we approach the looming revolution is irrelevant – that is my business and no one else’s.

Have any of these sure-footed IFAs stopped to think beyond their own wellbeing and consider what will happen to everyone else who is potentially going to be disenfranchised by the RDR? Quite why some firms seem to want to boast about their RDR-readiness is beyond me. It smells of egomania and confirms what some of us have suspected all along – these are the very same firms that only care about their own clients, at the expense and exclusion of everyone else.

The FSA’s treating customers fairly initiative does seem to have the odd flaw when viewed in the shadow of the RDR. Up-market IFA’s and their equally well-off clients will be treated very nicely but for everyone else, if you believe half of what you read, independent advice will be withdrawn overnight.

However, I suspect the reality will be rather less revolutionary. The usual suspects will carry on overcharging, using clever language to describe what really is commission as fees, and the rest of us will soldier on as normal, trying to add value in everything we do.

The Winterthur pension application is a case in point. Buried deep in its carefully crafted contents are two pages of remuneration options, just ripe for a silver-tongued salesman to exploit.

When all is said and done, will anything actually change for clients? Customer-agreed remuneration could be the biggest red herring we have seen for years. After all, I was never sure it was possible to make fees disclosure much clearer than we already have. Fees may be unbundled from the product in fact but in practice, they will remain inexorably linked.

And that presupposes people actually understand the difference between fees and commissions. With the current industrywide confusion, what hope do they really have?

As with the recent anti-forestalling measures, the RDR simply has not been thought through properly. How is it that at this stage none of us truly understands what to expect from remuneration models? And worse, how can it be that the shadier contingent in our ranks are actually sounding pretty chirpy at the moment?

Tom Kean is a director of Thameside


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. I agree with most of your comments but I also believe that any adviser who continues to give or add value to their customers or clients will survive quite handsomely however to do so may require you upping the “ante” by working more focused or harder.
    Always remember “quailty customers do expect quanlity advisers to get paid for their help and advice” so just deal with quality people and make sure your a quality adviser SIMPLEZZZ

  2. The problem with RDR is it seeks to address two problems that do not actually exist and ends up anti consumer. As follows:

    Myth 1 – all problems are caused by commission hungry salesman.

    The myth conveniently ignores the fact that Equitable life was nil commission, Split caps and Structured products were typically nil or 3% commission products and the Pension Transfer scandal finds its origins in government sponsered ads in the late 80’s showing company pensions schemes as a ball and chain.

    Myth 2 – All clients are stupid

    When hard disclosure was introduced the belief was that it would kill the industry. It didn’t in fact clients were simply pleased to be better informed.

    The reality is that clients realise that advice has to be paid for and in the main prefer to have the advice bundled in with the product for simplicity. If you have 30k to invest its nice to simply read the annual statement and see how much the 30k is now worth without having to separately work out the advice fees paid over the years. The type of clients who see IFA’s are perfectly capable of cutting deals with their advisers in the same way as they do in other areas of their life.

    So where are we now? We are trying to force all clients to pay in the way certain parties want them to. Surely it should be down to the consumer to chose and to cut his own deals…in this respect certain aspects of RDR are anti consumer. Factory gate pricing where adviser charging is added back on to the product is actually a reintroduction of Bid offer spreads through the back door…it just has a different name. From a product design perspective in this respect RDR has simply allowed us to go backwards 10 years.

    I am going to buy a car tomorrow. I will be presented with a packaged product at a certain price involving profit for the manufacturer and retailer. I will try to strike a deal and if I am happy with the car and the deal I will buy. I do not expect a component by component breakdown of manufacturing profit. Nor do I expect the retailer to fully disclose his margin.
    What is not understood is that actually most clients neither require nor desire to engage in such a process when they purchase financial products. They just want a fair deal.

  3. What a shame that this article should appear on a day when it is least likely to be read. Worthy of greater exposure, particularly as it was dated April Fools’ Day. When will we ever learn that it is the person that lives with and works alongside his/her clients and it is the relationship that is developed and nurtured over years of service and trust that is important. Also, that it is care and experience that counts and that client and adviser as adult human beings are quite capable of arranging between themselves how and in what way services will be paid for. Regulation already exists to protect clients from the people who abuse the system and I am sure the FSA already know who they are anyway so “what is this all about?” and “who will it really protect?”
    Everyone seems to have caught the latest buzz “Time for change”. How about “Time for change only when and where it is needed” or “If it ain’t broke don’t fix it”

  4. Good points Tom.

    As you say, how well you are prepared is your business and no one else’s.

    So don’t take notice of other firms and what they say – just get on with your good work. Simple isn’t it?

  5. A recent speech by Sheila Nicholl highlighted the continuing illogicality of the RDR process.

    She stated that the changes were being introduced to combat real and perceived problems in retail financial services.

    We now have the acceptance that the many of the ‘problems’ are of perception as opposed to reality.

    Rather than adjust consumer perception it is easier and politically more profitable to impose sanctions and additional rules on an industry already reeling from the economic downturn.

    Are we going to meekly submit to this?

  6. Spot on !

    As the old saying goes ‘be careful what you wish for – you might just get it’

    Those that believe the RDR will work for 95% of the population are living in Fairyland.

    The age old problem is simply that IFAs will not speak with one collective voice and as a result are run roughshod over by the Regulator whether it be the Keydata levy, RDR, Longstop and too many more to mention over the last 20 odd yrs. AIFA ‘huff and puff’, posture and pose make all sorts of noises for effect (in practice effect only) but have no intention of really fighting if they did they would have by now and if they have been fighting behind the scenes (which I for one somehow doubt given a lack of understanding of the real issues) clearly it is not taken seriously

    The IFA apathy must stop it really must. Who gains from any of this ? – not the IFA, (and that includes those that think RDR will work for them) it wont and they will know in time to come that it hasn’t ! More importantly it wont work for the vast majority of ordinary people either

    Those of a like mind (and that is the overwelming majority of IFAs) must join together we might just see how powerful a voice we could have. Adviser Alliance awaits your call ! I read these blogs and it is clear that the overwelming majority speak unanimously in agreement can we turn this agreement into a force for change and good ?? I truly hope so

  7. This article reflects the reality I fear. I agree with Tom and do believe that boastful RDR ready firms miss the point. The whole industry needs to be profitable and if as suspected the RDR results in less and less people being able to deal with an adviser and thus doing nothing at all, UK wide business volumes will slump. The ‘Don’t bother us if you have less than 100K to invest’ firms have a very limited appeal and where does that sit with being a quality adviser? A point will be reached when it is no longer economically viable for providers to continue to operate in the UK. I don’t care how RDR ready you are, the top 2-5% of advice firms in the UK will not generate enough business to keep the insurance companies viable and they will just withdraw. It has happened before, look at the amount of firms who pulled out of the UK in the mid 90’s and this time I think there is a real risk it will be the final straw. This time the FSA might just have finished us all off.

    I certainly hope not and I for one will be working hard to ensure we survive, that said, I can’t help but feel beleaguered and pessimistic. Equally I also feel it is too late, the last FSA document PS10_06 was a policy statement not a consultation, our views on the big change, were no longer being sought.

  8. Could not agree more.

    Excellent points already made, in the article and below it, so I will only add to these rather than repeat others.

    This current additional compensation scheme bill (typically £800 to £1,000 per adviser) will be 25% more costly after 2012 if as many advisers as predicted (by the FSA) do leave, as will the FSA fees, or do you all think the FSA will cut back?

    If this number do leave the PI insurance premiums taken by insurance companies will reduce, if any of these companies decide to leave this market, what will happen to our premiums?

    Until now and probably the end of 2012, IFAs have had the lion share of the market, over 65%, if many advisers leave and our share falls below 50%, we will no longer have scale on our side, the tied sector will get the better deals as they will have the majority share, do you think they will use that market share and economy of scale against us? I think they understand the power of market share better than our fragmented IFAs and will not hesitate to use it against us.

    I have a horrible feeling Roger Lane is spot on, I think the likes of the Pru buying in to India demonstrates the large business concerns created by this regulator. There is a bit of hedging going on by everyone at present.

    Industry is strange, gross profit margins tend to level off across an industry at levels within a tiny percentage of each other, yet there are thousands of individuals all trying to get an edge over their competitors, this is usually for good reason as it is the cost of operating and making a profit in that particular industry. We have a cost Police and enforced additional cost in money and time from a regulator who thinks they know better about operation of private business and about profit and loss, yet is a effectively an extension of government paid for by an enforced tax on business who arent allowed any input in to their behaviour.

    I do not understand anyone who concludes that this can be a recipe for industrial success.

    It is simply an ego trip for the man of the moment in the FSA chair, trying to get as much money and perks as they can before they are found out, nothing more and nothing less.

    We are stuck in a groundhog day type of nightmare.

    There is no ‘better’ after 2012, there is still the bank with over 1 million complaints, but now with qualifications, effectively mooning and holding up one finger at the regulator and the public.

    It is simple all we need do is club together about £300 each and fund an election, preferably for the party most likely to get in, then we have the governments ear and not the banks.

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