The retail distribution review was pre-empted by Sir Callum McCarthy’s September 2006 speech when he suggested that the current advice model is broken and not benefiting firms or consumers.
The RDR discussion paper entertains the laudable aims of restoring investor confidence in products and advice and ensuring that consumers receive a fair deal.
It is not the objectives which are reprehensible, rather the chosen route of regulatory vandalism.
I have been in the industry for over 29 years, longer, I suggest, than any regulator or here today gone tomorrow politician. I have worked within the vacuum of no regulation and then under Fimbra, the PIA and now the FSA. Each regulator has had a stab at improving the consumer’s lot and, in most instances, these tinkerings have failed abjectly, often making matters worse.
The most recent example of regulatory vandalism was depolarisation which, at a stroke, swept away 17 years of consumer education where the term independent had risen to have meaning and value.
Previously, regulators had introduced minimum entrance standards through examinations although we are now told that our levels of knowledge are too low. Previous regulators also devised capital adequacy requirements which we are now told are far too low.
Previous regulators instituted the pension reviews where policyholders were sent invitations to claim compensation backed up by repugnant advertising using the R U Owed? slogan. Not surprisingly, many people took advantage and this helped kickstart the compensation habit which now grips many consumers. These and other supposed misselling “scandals” form the basis of the proposed rise in capital adequacy require-ments for all but the proposed new breed of profess-ional financial planner.
One has to wonder what the various regulators were up to when they conducted compliance visits and sanctioned selling practices and products which they later claimed to be odious or suspect.
The entire industry supports the FSA in wanting consumers to be capable and confident. Such consumers are more likely to save and insure if they are knowledgeable and are more likely to value the services of IFAs. The role of advisers in educating consumers must not be underestimated. Advising clients they need critical-illness cover and income protection insurance is beneficial for the client, adviser and society.
Advising consumers to aim for financial independence by saving for retirement is commendable but has been undermined by means-testing and the shambles of stakeholder pensions, a system advocated by the Government which has chosen to ignore the Parliamentary Ombudsman and leave thousands of people with devastated pension pots.
Does such a total disregard for morality and fairness encourage the consumer trust that we all desire? Equally, is it likely that a push to fee-based advice will improve consumer confidence? Will consumers clam-our for fee-based advice or will they retain their disdain and pour into banks and building societies to be sold inferior products by people who will be gone when they return?
The RDR is clearly the brainchild of the banks and product providers which can scent increased profits.
Consumers need educating. We are told this is because plans are too complex and benefits unclear. Consumers are confused and as a consequence they rely on advisers. Thus far, a sound argument but the RDR suggestion is to further compartmentalise the advice process by introducing additional adviser categories. We are introduced to the professional adviser, the focused adviser, the general adviser, the primary adviser and the non-adviser. Firms will be able to include several of these mutations in their organisation and if they include just one “professional” adviser, the whole firm can position itself as “independent”. Treating customers fairly?
Our fees finance this hogwash. Can any sane individual suggest the consumer will be less confused? Are we returning to the days when high-pressure direct salesforces marauded across the land foisting dubious financial propositions on the ignorant and apathetic?
The RDR oozes such danger that all IFAs should download and read the document. Do not rely on some affinity group to respond on your behalf, the ostrich approach will not win this battle.
Alan Lakey is a partner at Highclere Financial Services