The FSA’s key word is “simpler” and at first sight it seems that the excesses of the previous document have been toned down and that the clear light of common sense has begun to penetrate the gloomy recesses of Canary Wharf thinking.
For this I am grateful and, lest it be suggested that I gripe constantly, I applaud the partial U-turn that this document represents. However, the ideas require careful scrutiny. Despite there being no formal response mechanism, I urge all advisers to make a considered response. Believe me, the banks and insurers certainly will.
In trying to distinguish between advice and sales, greater financial inclusion – the fundamental objective of the RDR – is likely to be forsaken. If one writes to an existing client and suggests it is an opportune time to increase his family protection, will this be advice or sales? It certainly is advice, and probably very good advice, yet the intention is to persuade him to buy a protection product, so it is also sales.
I suggest that the answer to this conundrum will help determine whether the proposed changes are practical or yet another white elephant.
The consensus view, according to the FSA, shows there is no appetite for primary advice. Intriguingly, we later find that guided sales may be allowed and that this may include persuasion, non-limited commission and restricted access to the FOS. Now correct me if I’m wrong, but isn’t that mighty close to the primary advice model originally mooted?
One area that needs urgently addressing is the move towards accreditation. This is one of those easy vote-winners that nobody can reasonably argue against, and no doubt the press and consumer bodies will applaud it as a big step forward.
Sadly, it fails to address the disparate nature of financial advice. The suggested minimum, QCA Level 4, can be achieved by attaining the Diploma in Financial Planning. The diploma is achieved by accumulating 140 credits and allows for previous exam passes. Having FPC 1,2 and 3, a Cemap mortgage pass and a certificate in lifetime mortgages achieves 60 credits, leaving a shortfall of 80.
As each of the seven modules is worth 20 credits, four separate modules must be completed. These comprise personal tax, trusts, the tax and legal aspects of business, pension funding and pension income options, investment principles, markets and environment, and supervision in a regulated environment.
For those whose business mix exhibits a predominance of mortgage and protection, this means the majority of the modules will have little practical impact on their ability to advise. The Chartered Insurance Institute concludes that 100 hours of study will be required and £536 will have been spent in exam fees, if a non-member.
This is where the proposals fail. Mortgages and protection should not be viewed in the same way as investments but the failure to include them ruptures the entire proposal. There is a failure within the CII for not introducing a specific protection module but ultimately the problem lies with the thinking behind the RDR and the interim report.
The adviser population and the advice process cannot be segmented because of the inevitable overlap. If a Diploma in Financial Planning is essential to my remaining in business but fails to enhance my advice and therefore my worth to clients, it becomes a sham.
The dissection of this document has only just begun and, no doubt, interested parties will robustly defend their respective positions. Let nobody imagine that the suggestions within the report will solve the savings and protection gaps.
The industry needs more whole-of-market advisers who are enabled to prospect for new clients and be paid for their success. The initiatives within the interim report will only serve to reduce numbers and increase the ability of the banks to market sub-standard products. A bit like the original RDR, really.
Alan Lakey is a partner at Hichclere Financial Services