Are we sitting comfortably? I don’t think so. As the clock ticks down to 1 January, it is becoming clear that in every segment of the financial services industry affected by the RDR, there are lots of processes, products and services that are not RDR-ready.
The real question is whether those who fail to be ready in time will get away with it.
Without going into the detail of how adviser charging affects DC scheme advice or client withdrawals from bonds or pensions – the kind of areas where unintended consequences of the RDR are showing up like long-lost members of the Adams family – I look at this from two perspectives, the political and the professional.
From a political perspective, the regulator now faces an active political group in Parliament representing financial advisers.
Financial advisers are mainly small businesses and can easily cast themselves as Davids being oppressed by Goliaths and, at a time when every government department is meant to be helping small businesses, such oppression is likely to get a bad press.
Furthermore, the regulator has already signalled that it knows where the soft targets are. Hammering the banks for incentivising staff to loot and pillage their customers is an easy win, and there are plenty more where that came from.
Obvious failures by product providers are likely to be met by reprimands and heavy fines. I hope that senior managers will be told they will be named and shamed for future failures, as the FSA has already suggested.
Bans on toxic products will provide another stick to beat them with. Great stuff.
So in the first phase of the RDR, it seems we can expect finger-wagging, slapped wrists, heavy-booting and penal fines for product providers that will keep critical MPs at bay and provide the odd decent headline for the FSA.
But what of advisers? It is well known that there is a significant minority of advisers who are simply pulling a fleece over their historic commission-based payments and calling it adviser charging.
But calling commission charges will not do the trick with networks, which are being told by the FSA that they will be looking for such practices. In fact, networks are under pressure to chuck out such advisers before 1 January.
A key point is that the new management information advisers have to provide to the FSA from 1 January will in principle enable a computer (let’s bypass the issue of whether there are intelligent human beings at Canary Wharf) to identify advisers (at an individual as well as firm level) who are looting and pillaging their clients.
You might therefore think that advisers using woolly adviser charging to disguise commission-based selling will be banned. But if such firms are directly authorised, you have to have a considerable (some would say unwarranted) degree of faith in the regulator’s ability and will to identify and stamp on such practices.
I fear the first year of the new regime will see a minority of directly authorised adviser desperados continuing to carouse in the last chance saloon.
From a professional perspective, I can only hope the regulator takes the cosh to them as well as to the big bad banks. My advice would be that to herd sheep you need dogs but to hunt wolves you need rifles.
Chris Gilchrist is director of FiveWays Financial Planning, edits the IRS Report newsletter and is the author of the Taxbriefs Guide, The Process of Financial Planning