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Daniel Harrison: Don’t expect FCA to change tack on Section K


Making predictions is a slightly risky business. More often than not, it is just paper talk – a festive media tradition as people reflect on the previous 12 months and speculate as to what’s coming up.

Sometimes, though, predictions are business-critical and the decisions people make can, for better or for worse, have a serious impact on their success in the next year and beyond.

There were certainly plenty of predictions floating around back in December 2012. Our industry was on the cusp of the arrival of the RDR, and it was widely accepted that it would have a huge impact on the way everyone worked.

Regulation and reporting, however, was a slightly more contentious issue. True Potential had been telling people for some time that levels of reporting would increase as the FCA came into power, and we received mixed responses – often to the effect that what else what you would expect from a technology provider?

But our predictions had been founded on decades of industry experience and careful research over the previous year and we have not been surprised to see the level of reporting requirements that have now been thrust upon our industry.

The requirements are so complicated that, in November 2013, the FCA issued a clarification note to help bewildered advisers negotiate their section K RMAR obligations. To many, the clarification from the FCA only served as a reminder of how arduous the RMAR process can be.

We believe that what we have seen transpire has more than justified True Potential’s decision to focus heavily on the way our systems are integrated to record and report transactions for our clients.

Done the wrong way, an RMAR can be onerous, time-consuming and a significant drain on the resources of those that have not been properly prepared for this.

One of the unintended consequences has been that IFAs are incorrectly questioning the value of working with clients with smaller portfolios. Recent figures showed just under half of advisers have turned clients away post-RDR, and 14 per cent had actually formally asked clients to leave their practice within the past 12 months. However, at True Potential we are firm advocates of making a volume-based model work for our partner advisers and firms.

Some may feel it’s harder to justify smaller per-client margins as part of a business plan when reporting levels for each transaction are so high. In fact, we believe it’s both essential and possible to keep these clients engaged with the advice process, firstly to ensure the ‘advice gap’ remains closed, and also in order to provide adviser firms with a regular volume income, made possible by using the right systems.

There are a lot of dissenting voices in the industry – those who point out that the FCA cannot possibly have the man hours to do anything with all of the data it is collecting. But what is crucial to understand is that this reporting is here to stay.

The FCA’s entire approach has been built around this model and is totally dependent on the data it collects as it attempts to build a picture of the industry it is regulating.

While we are not defending the regulator at all, there currently is not a lot of choice. The options are deal with its requirements efficiently or leave the industry. At True Potential, we still feel those that take the second option would be missing out on an opportunity to work – and make a very good living – in a fantastic industry.

Which brings me neatly on my prediction for the next 12 months: namely, that reporting is only going to become more detailed.

The difficulties with the RMAR have attracted criticism but there are plenty of other issues that are currently attracting the interest of the FCA, such as value propositions. My advice to anyone in the industry would be to prepare for a lot more reporting, or to consider finding a more efficient way of working and handling their data.

Daniel Harrison is senior partner at True Potential



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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Nice advert.

  2. @Paul McMillan,

    This really is an advert, and not even an advertorial. There is nothing new or informative about this piece, and it particularly does not tell us anything useful about the woeful Section K of GABRIEL.

  3. Neil F Liversidge 3rd January 2014 at 6:23 pm

    Nice go at talking your own book Daniel. Anything else to say?

  4. The big and still unanswered questions remain:-

    1. Just what does the regulator actually do with all this data it forces intermediaries to report?

    2. Does it have the resources to analyse anything more than a tiny proportion of it?

    3. Are there any examples of any of these reports having enabled the regulator to step in and prevent any firms going down with consequent damage to the interests of its clients?

    4. Why does the regulator require twice yearly reporting? Just how much can change over a period as short as 6 months?

    5. Why is it necessary for intermediaries to produce a full set of accounts with every return?

    6. Would it not be helpful to all parties if the process could be simplified and streamlined? Why isn’t the regulator prepared to enter into constructive dialogue with the industry to accomplish this?

    7. Given that the costs of producing these returns have to be factored in to what firms charge their clients, are they not a contributory factor to the advice gap about which even Martin Wheatley has expressed concern?

    8. Is the requirement for these returns little more than additional regulation largely for its own sake?

    9. What’s APFA trying to get done about it?

    10. Isn’t this an issue that might well be pretty high on the agenda of an Independent Regulatory Oversight Committee (if only we had one)?

    As for the suggestion that this is “a fantastic industry”, get real Mr Harrison. It isn’t. Excessive, mis-prioritised, mis-directed and pernicious regulation wrecked all that years ago. Northern Rock, ArchCru, KeyData, the Co-op, removal of the longstop, inadequate regulation of CMC’s, intermediaries leaving the industry ~ the list is long and depressing. I and many, many others certainly don’t enjoy working in this industry any more. I just struggle on because it’s the only trade I know and I still make a reasonable living from the recurring income on my existing book of business.

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