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FCA hits out at claim RDR caused adviser numbers to plummet

GHeath05The FCA has defended the impact of the RDR on adviser numbers and consumer access to advice in its response to the Heath Report Two.

The FCA was asked by the Treasury Select Committee in January to comment on the numbers and methodology used in report, released by Libertatem director general Garry Heath in February 2015, relating to the impact of the RDR.

The regulator recognised there was a decline in adviser numbers in recent years but it claims this relates to market factors other than the RDR – such as banks withdrawing from the market and the consequences of mass misselling.

The FCA said that because the Heath Report measured the change in adviser numbers from 2008 – when the RDR was announced but not implemented – it was difficult to pinpoint how much of the change related to the RDR.

It says: “It is important to note that adviser numbers on their own do not tell the whole story, since the issue is not solely the number of advisers, but the number of clients those advisers service which determines capacity in the market.

“There is evidence that points to advisers having adequate capacity to meet demand.”

The FCA also disputed the RDR had left 16.5 million customers unable to access advice, as the Heath Report Two claimed. It said the report’s analysis had overestimated the number of “abandoned customers”.

The FCA says: “It takes the number of consumers who have received advice ‘at some time’ and then subtracts the estimated capacity for advice based on the number of clients the report estimates the advisers in the market at a particular point in time can service.”

It adds: “It would seem unreasonable to expect the stock of advisers at any one point in time to be able to service all individuals who have ever had advice at some time.”

The FCA said it was continuing to monitor the impact of the RDR and that it was delivering some positive impacts, such as improving adviser professionalism and reducing product bias.

Heath told Money Marketing Libertatem feels neither “bloodied nor unbowed” by the FCA response.

He says: “Most of their arguments have not scratched the paintwork on the report. What I want to look at are what parts of the Heath Report they have not criticised because if they have not mentioned it then presumably they are right.”



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There are 35 comments at the moment, we would love to hear your opinion too.

  1. The FCA will never admit that they are wrong.
    RDR was their baby (ok FSA) so they must always be right.
    The regulator defies logic. With the drop in IFA numbers and the change from commission to fees, these are the main primary reasons for “abandoned customers”.

  2. Steven Pearman 9th June 2016 at 4:15 pm

    I wonder who the FCA do blame for the reduction in Advisor numbers and an increasing reluctance by anyone to deal with this ongoing issue?

  3. Richard Wright 9th June 2016 at 4:16 pm

    Utter Tosh FCA – totally correct Garry Heath

  4. The FCA does seem to be an old Dinosaur that has it’s head firmly stuck in the Sand.
    It is saying the RDR has had no effect on Adviser Numbers and they also dispute the RDR has left millions of customers unable to access advice, Just bewildering!

  5. Hmmmm, WHY did the banks pull out of the market………

  6. Chris Langston 9th June 2016 at 4:29 pm

    RDR certainly had an influence on my decision to exit the industry after some 47 years. I had intended to go past my 65th birthday but decided against this and not wishing to justify my existence with yet another slew of examinations, my qualifications and experience would stand up to any scrutiny.

  7. I dont think the FCA really understand the problem to be honest. Most IFAs are smaller companies with 1-4 advisers they tell us. That kind of smaller team is alien to them. What is more familiar is the big bureaucracy of the civil service or banks where decisions are subcontracted out to committees and other departments. RDR did not in isolation cause the fall in number but it had a significant impact – almost the final nail in the coffin for some.

    If they stood back and took stock of the constant changes, retrospective judgements (which still impact today whether real or not with the new pension freedoms), constantly evolving regulations, spiraling compensations bills, no long stop,etc, etc they would realise they have caused the perfect storm and until they start to deal with some of the real issues number will continue to decline.

  8. Steven Pearman 9th June 2016 at 5:27 pm

    I disagree Gary. I think they fully understand, but do not care. These are career people who do what is required to futher their own agendas which with few exceptions is their next job / pay packet.

  9. after 22 years being IFA Rdr was the final nail they just don’t understand small IFA and to be honest they don’t want to as numbers drop and fsa budget goes up who will be able to afford to give advice

  10. Trevor Harrington 9th June 2016 at 5:39 pm

    There is something really frightening about an important and powerful regulator which is in complete denial about something which is so obviously, and unquestionably true.

    If only we had a proper trade body, who represented our interests with a great deal more determination.

    If we did have such a trade body, it would now be demanding an abject apology, and threatening to withdraw our annual regulatory fees until such time that it is received.

    Over to you Garry !

  11. Martin O'Kelly 9th June 2016 at 5:39 pm

    The FCA’s response is intellectually worrying. They really do not appear to understand the impact the RDR has had. They should analyse Heath’s stance and reach conclusions that will benefit the public. If that should mean acknowledging that mistakes have been made – then so be it. The bottom line is that the RDR has been detrimental to the public.

  12. It’s all denial, denial & yet more denial to justify their existance. It’s getting rather tiresome now so why don’t they just look at the facts and LISTEN to the industry and then put their hand up and admit they dropped a clanger.

    Could it be that the facts, surveys & reports they refer to, to justify their position may well have been supplied by outside consultancy’s firms such as those with Mr. Sants on their board???

    I’m with you Greg Heath, as a small practitioner I couldn’t put it better myself.

  13. Hampshire Yokel 9th June 2016 at 11:16 pm

    In the late 1980s to mid 1990s I was a tied adviser on a self employed basis. Then, when my ’employer’ was taken over, I took a short term role in compliance for one of the (then) biggest financial services businesses, whilst I considered what to do next. I followed that with a few years doing field compliance for one of the IFA networks, before being asked to join the PIA (in the period in which they then became the FSA).

    Whilst there, the rules about having to offer a fee option to clients of IFAs was introduced. I was in a meeting of 30/40 FSA supervisors to discuss the new rules, when the ‘policy guru’ started by asking if there were any questions about what we were there to discuss – pretty bold, before they’d even started. I was sat at the back of the room, perched on a table as there were no chairs left. I asked, “what are we trying to achieve?”

    The lead presenter looked quite smug at this point, as if I’d asked exactly the question he had hoped for. “Our aim” he said, “is to educate customers about the cost of commission, let them know about the alternative of fees and get them to ‘shop around’.”

    “Isn’t that the same objective that the PIA had in 1995 [when I was still a financial adviser]?” I asked, “which clearly failed.”

    “Yes” he said, “but this time it will work”.

    I did challenge further, but won’t try and type out everything on my iPhone. Suffice to say, it didn’t work and therefore the ‘powers that be’ at the regulator had to have another go.

    The first draft of the TDR was far from perfect, but did at least have a chance of achieving the aims set out; especially with regards to improving the availability of advice. I spoke at adviser forums in different locations, along with some senior staff of Financial Adviser and Money Marketing trade papers and continued to provide support and guidance to IFAs, now as a consultant to the intermediary sector (having left the regulator).

    It was clear, when the launch of the RDR was delayed for the arrival and interference of Sir ‘Didn’t Deserve His Knighthood’, that the original objectives of the RDR were to be abandoned.

    What came next was always going to result in the exact opposite of the original remit for the RDR.

    I know businesses that have embraced the change, developed their academic qualifications and excelled through this period. However, there are also many who have taken this ‘opportunity’ to leave the industry.

    There can be no doubt that, whilst most of the remaining advisers are better qualified than they may otherwise have been, the original objective of the RDR has been completely destroyed.

    The average man in the street isn’t better able to get professional advice (or any advice); quite the opposite.

    When I first started in financial services, I was critical of those I knew in the ‘home service’ companies (Pru, Prarl, Co-Op etc.). I looked at the cost of running those collection teams and the impact on the charges (and therefore returns) of the products they sold, believing them to be really poor value. Arguably they were.

    However, these people got ordinary folk to save money. Most people in this country, including some of the poorest, had some savings.


    Well now, most of the people who may have had savings, will instead have unsecured borrowing; credit card debt, pay day loans etc.

    This isn’t all down to the RDR, but it certainly didn’t help and surely that was the whole point.

  14. Dear FCA ….. one question RE-: “There is evidence that points to advisers having adequate capacity to meet demand.”

    If RDR did NOT result in reduced adviser numbers and / or access to advice / guidance why did you/treasury feel it imperative MAS was set up ?

    On a side issue…… can I ask where you buy your rose tinted specs ? it must be a great view from your eyes.

  15. How can the financial regulator even try to retain credibility when it makes nonsensical statements like this.

    Does it believe that this bland refutation is sufficient to make the matter go away?

    The RDR was a dereliction of regulatory duty. The duty of care owed the public and advisers. Elderly advisers were hounded out of the industry by the flat refusal to grandfather them into the new QCF4 world. No other industry adopts this black and white methodology and no other industry has a regulator that is as tainted and hated by those it regulates as this one.

  16. One of the driving forces behind RDR was alleged commission bias.

    The FSA admitted that there was no actual evidence but the drove ahead with it anyway, but still allowed protection policies to continue to pay commission, ignoring independent reports predicting the fall in adviser numbers.

    Now they claim the fall in advisers numbers is nothing to do with RDR.

    Is there a serial killer knocking off all these advisers then and should people be worried?

  17. Julian Stevens 10th June 2016 at 9:01 am

    As I’ve said many times before (so forgive me for saying it again), the problem isn’t the RDR in its basic form, as approved by Parliament. A higher minimum qualifications benchmark and CAR aren’t, in themselves, unreasonable and have done much to weed out the flog and forget cowboys. Rather, the problem is the FSA/FCA’s never ending programme of embellishments to those original precepts, which is still going on today. It got the green light from Parliament then went off like a bull in a china shop, going WAAY beyond its approved remit. As a result, the adviser community is so utterly punch-drunk by it all that advisers are leaving the profession and not being replaced.

  18. Stephen-Mark Rowland 10th June 2016 at 9:50 am

    Agree with everything ‘Hampshire Yokel’ has said – I was one of the Pru collectors – & I still firmly believe that if you factored in our role generally of ‘ education’ that should have been factored in to the equation – we were bloody good value for money! It’s not all about charges all the time – though quite significant – it’s the WHOLE PACKAGE!. In financially illiterate Britain – the man from the Pru had a very moral & associated educational/making finance ‘exciting’ role,which has really been very badly/ sorely missed – & now with the Banks pulling out completely – there is NOTHING there to really replace it!!!

    Middle England has been hung out to dry!!!

  19. “Regulation means never having to say you’re sorry”! Thi as our response Tuesday latests Friday I am mostly commenting on FCA’s nit picking critique on THR2. We will send this to Treasury Select Committee Tuesday latest.

    Trevor Harrington’s point is well made. We face this nonsense because for 15 years we have had supine representation. We will get change only when the regulator knows that attacking the Professional sector has unpleasant consequences for them in terms of media interest and parliamentary pressure. Asking nicely and playing the game demonstrably hasnt worked,

    Some think that Libertatem is unreasonable.

    Reasonable men adapt to the world around them; unreasonable men make the world adapt to them. The world is changed by unreasonable men. I am sure Edwin Louis meant women too!

    Its time to stop moaning and start being unreasonable its the only way to get change

  20. I confess to not having seen the Heath Report 2, but reading these posts rather makes me think I live in a different Universe.

    Plummet is the wrong word. A decline in numbers is probably correct. I see three causes:

    1. As we see so often from these pages, the average age of advisers is approaching the geriatric. Younger replacements are not rushing (a different debate here). Everyone reaches a sell by date (even me unfortunately!)
    2. A significant number of advisers were either too lazy or too stupid to take the exams to secure the slightly higher educational standards required and thus dropped out – to the benefit of higher standards in the profession.
    3. Linked to the above and probably in addition were those with a naff business model that couldn’t cope with the demise of commission.

    From my perspective, although the RDR was far from perfect it was certainly a force for good and did improve things greatly in a move to a more professional approach – which was sorely needed. It was only a shame they chickened out and allowed gaps. Commission on life products, annuities and on direct offers.

    I very much buy into the FCA statement: “There is evidence that points to advisers having adequate capacity to meet demand.”

    Here the operative word is demand. People actually wanting advice can get it. Where the so-called advice gap appears is for those firms of advisers who made a living force-feeding people with products they didn’t actually want, probably couldn’t really afford and probably ditched after the earnings period ended. They most likely would have had been better served if they had been advised to reduce their debt – but there is no commission in that.

    In response to Martin Lewis – that is not a difficult question. This was another big win for the RDR. It curtailed the banks giving naff advice and ripping off their customers. Their demise from the market has saved the public untold billions and made the banks concentrate on Government approved rip offs – credit card and loan charges.

  21. The website muddled the first para it should read….

    “Regulation means never having to say you’re sorry”! This Friday I am mostly commenting on FCA’s nit picking critique on THR2. We will send this to Treasury Select Committee Tuesday latest.

  22. God forbid the FCA actually turn round and admit that they were wrong about the RDR. They keep trying to get an ever increasing square peg into a shrinking round hole. Eventually it will give up and have to start again. They really are clueless about the impact the RDR has had on the average person, or as someone posted above – they do see it but couldn’t care less

  23. I have read the so called ‘Heath Report’ and find it to be a deperate piece of propoganda from an old scholl mindset that does nothing to progress the sector forward. Align this with the aim of the trade body (such as retaining trail commission) and you get a picture of the direction garry wants the industry to move – Backwards.

    Yes numbers are down, but thats because historically people who should never have recived financial advice, because they were not in the postion to invest what little money they had, were forced by commission hungry salesmen under teh pretence that the advice was ‘free’

    The greatest thing RDR has done is to clarify the cost of advice, and the advisers who couldnt demontrate this value have gone.

  24. I’m not disputing the fact that the loss of bank advisers isn’t a good thing. But the FCA are arguing that the RDR isn’t the reason for lower adviser numbers and point to the fact that banks pulling out of the advice sector is one of the main reasons……but they only pulled out because of RDR. Their response/defence is unbelievable, you couldn’t make it up. This is indicative of our society i.e. the privileged “haves”, lauding it over people who actually have to WORK for a living and do not have their salaries and pensions funded by other people’s hard work.

    We survived RDR quite easily, I believe because we already had a very fair business model. But part of our changes meant that we now have a cut off point of client “worth” that we will consider dealing with because an initial free appointment with someone only to baulk at the fee for giving advice and another 15 minutes explaining to them WHY our fees are what the are and what our expenses are isn’t something that we’re prepared to put ourselves on a weekly basis so the FCA better believe it, the RDR absolutely DID result in some people not being able to access advice.

    If the main objective of the exercise was to rid the industry of commission bias by some rogue advisers then they could have done that very easily without RDR.

  25. The people at the FCA are being paid tens of millions of pounds to, mostly, just justify jobs for the boys, especially in the IFA/small firms area. And all of these reports claims and counter claims are totally unnecessary, just simply fine/ban/jail the bad boys when they’re found and leave decent hard working advisers to do their job and stop meddling with something that isn’t really broken.

  26. What was the average age of the advisers who have left the industry since the RDR? Were they due to retire anyway?

    Until anyone can answer these 2 questions, this debate is a pointless waste of time.

  27. Julian Stevens 10th June 2016 at 3:36 pm

    Ah, the issue of commission. Few, if any, intermediaries would argue for a return to the definitely bad old days of Initial/Capital Units. BUT, I really don’t see the problem with a decent initial remuneration for the adviser being taken from the product by way of reduced allocation (of regular contributions) for the first two years with some sort of indemnity arrangement. What’s the alternative, given that the FCA has (perhaps deliberately) unhelpfully banned initial and fund based advising charging running concurrently, even though they’re for two entirely different services? Other than a separate upfront fee, which most clients of relatively modest means either cannot or will not pay, I can’t think of one. So what’s an intermediary supposed to do if a potential new client comes to him asking for advice on embarking on contributions of just £100 p.m. (which is all he can afford) to a PP? State his terms to be a fee of £350 for the advice and £250 for implementation? I can’t pay those sorts of sums says the young client, who’s really trying his best to do what everybody’s telling him he ought to. Wasn’t the central objective of the FAMR supposed to be about improving access to advice? What happened about that?

  28. Trevor Harrington 10th June 2016 at 4:02 pm

    Whether RDR was good, bad or indifferent to the quality of services to the public is a separate argument.

    The issue here is simply that the Regulator (FCA FSA) is denying that the RDR caused a fall in IFA numbers (it was actually a 20% decline in numbers).

    A regulator in complete denial of it’s effect on a profession, and the resultant substantial reduction in services to the public, is a very dangerous thing.

    If they are refusing to recognise the damage that they have so obviously and demonstrably done, they are themselves worse than the worst possible case of theft, or criminally bad advice, that any Adviser has ever perpetrated on the public, including miss-selling of Public sector DB pension transfers, endowments, precipice bonds or anything else you care to mention.

    The problem is how to bring a rogue regulator to do what it is supposed to be doing, when it refuses to recognise or accept the reality of their own actions.

    Who is there out there, who even has the power to hold them to account, when they will not even answer or consider the recommendations of the Treasury Select Committee, and by connection, the Government of the day.

    The Government cannot just shut them down overnight, because doing so would simply let the few remaining dogs loose. However, the Government really must sort this out somehow, and for my part I would suggest a task force should be created from known IFAs, probably the retired or semi retired who have nothing left to prove, and they should be sent in to the FCA with the power to question everything and suspend anybody they wish (without pay).

  29. Julian – Why would someone with £100 a month to invest need financial advice? They could stick it into a scheme with HL or Pru etc. themselves (XO) or use a guidence service – they cant really go wrong.

    Once the PP has risen to a decent amount or they have more to invest, then seek advice on how to best utilise thier money.

    Paying for advice for something that will at best be worth £4k in three years seems OTT.

    • I rather think that this returns us to the earlier comments regarding the merits of home service companies and the bedrock they created for this industry. Yes, anyone with £100 a month can go and invest it with an on-line company…but will they?

    • Matt you are so wrong……. you make the assumption that just because some-one has some disposable income (ignoring whether it is a large amount or small) all they want to do is save, or just “stick it” somewhere willy nilly ?
      There is probably a multitude of areas that need careful consideration… life protection, critical illness, emergency savings, income protection etc etc etc the list is long

      In short they need to be advised, and if you consider that these people with low disposable incomes are younger (18 to 35) the real need for advice is so very important, rather than …. oh I know, I will put a £100 per month in some dog …. fund with HL (ex only) when in reality there are so many other things that are more important.

      Ex only/non advice should be banned for all, but the very experienced investor, RDR has all but cut of a vast number of people who need such advice (yes even those with small disposable incomes) this why adviser numbers have fallen, this is why we have an advise gap, this is why advice is expensive.

      The regulator is arrogant to the extreme, if it believes (which I think it does) that the young will “DIY” do you honestly think a 25 year old will spend more on the latest gadget, a extra trip to the pub, new clothes, rather than “stick” some money in a random fund with HL ?

      When he sticks his car round a tree, what will happen to his young family when his £25k a year suddenly stops ? Oh but wait… he has £5.30 in HL invested in a fund he knew sod all about, and because he didn’t realize investing in some crappy fund could mean he run the risk of losing most of his money !

    • Cant really go wrong, you live in a dream world. After 34 years in this business I have met may new client that tried to “do it alone” and ended up with worthless unsuitable products invested in totally unsuitable funds. Unless of course you are saying that the “average Joe” is capable of performing their own Risk Analysis, and if they are then there is no need for professional advisers anyway!

  30. Writing this tong in cheek.

    First thing that came into my head, a song “Wasn’t Me”, Shaggy.

    Say it often enough and loud enough, it must be true. My be this should be the regulators new theme song.

  31. Cant really go wrong, you live in a dream world. After 34 years in this business I have met many new clients that tried to “do it alone” and ended up with worthless unsuitable products invested in totally unsuitable funds. Unless of course you are saying that the “average Joe” is capable of performing their own Risk Analysis, and if they are then there is no need for professional advisers anyway!

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