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E&Y: Providers’ RDR strategies are ‘highly risky’

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Ernst & Young has warned providers are adopting “highly risky” RDR implementation strategies without appropriate back-up plans in the event the deadline is missed.

In its One Step Beyond report, which looks at the future of long-term savings and investments, E&Y says it has seen examples of where providers are not doing enough to track their progress to RDR readiness.

These include providers working to a deadline of 31 December for key implementation tasks, with no milestones set to measure progress ahead of that date. E&Y has also seen providers failing to keep risk logs of what could go wrong, and lack contingency plans if regulatory requirements are not met on time, such as where companies are relying on third party software providers.

It has also noted providers are not keeping records of why strategic decisions have been taken, such as reasons behind a provider’s approach to facilitating adviser charges.

The report says: “In our view, leaving critical implementation tasks to the ultimate deadline is highly risky, and insurers should be planning for an earlier RDR readiness date, with explicit contingency plans in the event of slippage.”

E&Y says facilitating adviser charging is “causing headaches” for some providers who are looking to offer sufficiently flexible adviser charging methods, and says providers need to strike a balance between getting evidence that the customer has agreed to adviser charges without adding extra complexity to the sales process.

The company notes the challenges faced by providers to facilitate adviser charging for new business while continuing to pay trail commission on pre-RDR business. It also highlights that providers have not given enough thought to post-RDR monitoring, including areas such as decency limits on adviser charging.

E&Y points to the Dear CEO letter sent to firms earlier this month about payments that work around the RDR commission ban, and says the letter suggests that in the race to buy up distribution firms may be breaching regulatory rules.

The report says: “In the heat of the battle to secure deals and relationships, there is a risk that providers and advisers may have overstepped the mark, or that certain compliance details may have been overlooked.

“Senior management and non-executive directors should satisfy themselves that any deals done are both commercially advantageous and compliant. Failure to ensure the latter could undermine the former.”

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Comments

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

  1. Really..?

    What, the providers are faffing about and failing to identify their arses from their elbows?

    Their systems are unlikely to be ready on time and those that are probably won’t work properly?

    Remarkable…usually they are so competent.

    Next you’ll be reporting that the RDR will be a car crash and the the FSA don’t have a clue about financial services and miss every big financial disaster.

  2. The FSA doesn’t have a Plan B either, if the hoped-for Brave New World, post Red Button Day, turns out to be the chaotic mess predicted by many, with consumers even more alienated from the industry than apparently they are already.

    But never mind ~ let’s just drink, dance and be merry folks ~ it’ll all come out in the wash.

  3. @ Soren Lorenson

    What, like regulating the banks? Or like regulating the Connaught Income Funds? Two examples at the ends of the spectrum. Maybe everything in between is indeed fine and dandy!

  4. RDR was an over complication of rules to create a level playing field. The FSA could have simply ruled that for a certain pruduct, providers had to pay the same commission. No financial bias at all. Perceived or real bias eliminated. No big deal or drama. Instead, now we will be left with a car crash aftermath of an industry, where very few IFA’s will look after very few, very rich customers…

  5. Neil F Liversidge 24th October 2012 at 5:15 pm

    FSA spokesman Richard Head said “It’ll all be fine. We’ll still get paid whatever happens. If a load of firms go out of business and leave us with a fees shortfall we’ll just put up everyone else’s fees, and the FSCS and FOS will do the same.”

    “It’s a no-brainer really, the RDR, which is why it was thought up here in Cloud Cuckoo Land – er, sorry – Canary Wharfe.”

  6. How apt that the comment comes from Richard Head at Budgerigar Street.

  7. “E&Y says facilitating adviser charging is “causing headaches” for some providers who are looking to offer sufficiently flexible adviser charging methods, and says providers need to strike a balance between getting evidence that the customer has agreed to adviser charges without adding extra complexity to the sales process.”
    There’s the next set of complaints folks. “I didn’t agree to that charging structure” I can see it now…!!!
    Are these people for real. The providers are struggling because the RDR framework is a total mess, and it’s like trying to hit a moving target.
    All that will happen with RDR is they’ll destroy a large chunk of the industry, the people responsible will go off to nice jobs in the city or receive gold plated pensions and the mess they’ve left behind will be the responsibility of someone else! That’s what usually happens and do you see this being any different?

  8. Neil F Liversidge 24th October 2012 at 5:47 pm

    Take an industry that employs tens of thousands of people and services tens of millions, helping them to rely less on the state.

    Smash it to bits.

    Be surpised at the result.

    Only civil servants and politicians could be.

  9. Crikey, what we need urgently is a 247 page consultation paper with a 90 day deadline followed by a 9 month review and a report to look into this.

    Maybe E&Y could be engaged at no small cost to ascertain the outcomes of this emerging risk. What, they’re too busy?

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