One of the August traditions is the publication of A-level and GCSE results together with the newspaper pictures of young people celebrating.
Alongside this year’s results there was much comment about the fall in the top grades as efforts to make the exams harder begin to bite. This was followed, perhaps unsurprisingly, by employers and universities, those trying to make sense of the value of grades, calling for stability and warning about the danger of unintended consequences when making constant changes that are not fully thought through.
I began to see a similarity between the education sector and financial services because August also saw the publication of the minutes of the FCA’s June board meeting, at which the implementation of the RDR was discussed and a number of key issues were identified. Among the key issues were two that I found particularly concerning – not just the substance but also what they indicate about the way the FCA works.
Those issues are whether the lack of an end date for the payment of trail commission might lead to firms acting in a way that risks poor consumer outcomes and concerns that contingent charging methods may lead to an increased risk of churn.
In other words, the regulator is worried that there is a risk that some firms might advise their clients to do nothing when they should be advising them to switch products while other firms might advise a client to switch products when they should be doing nothing. Damned if you do, damned if you don’t.
What concerns me is that these “key issues” were discussed by the FCA board less than six months into the RDR. The framework has been debated over six years. Advisers spent many hours and a lot of money preparing for and implementing the RDR changes. Many are still refining their business propositions as the changes bed down and consumers acclimatise to the post-RDR world.
I believe it will take at least two years for the full impact of the changes to work through the profession, so it is far too early to draw firm conclusions about the outcome and impact of the RDR.
While the sector is undergoing a significant period of change, further changes to the regulatory environment will be destabilising to businesses’ ability to plan. The FCA should also recognise the damage uncertainty from speculation about potential action causes firms.
What is needed is a period of stability and better management of the regulator’s communications to manage expectations. There should be no more changes until after the FCA’s promised post-implementation review in 2014 and we could do without “policy creep” by hint and rumour. Advisers need to be able to plan and, to do that, they need certainty about the regulatory environment in which they are operating.
In the same way that an exam system which constantly changes makes it difficult to know what exam grades really mean, a constantly changing regulatory environment means that advisers no longer know whether what is a viable business today will still be viable tomorrow.
Chris Hannant is director general at the Association of Professional Financial Advisers