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FSA says up to 20 per cent drop in IFAs is acceptable

Losing up to 20 per cent of IFAs is an acceptable cost in order to deliver the specific improvements brought in by the RDR, according to the FSA.

Giving evidence to the Treasury select committee this morning, FSA chief executive Hector Sants said if the reduction in advisers was not acceptable the reforms would not be going ahead.

He said: “We have some suggestion that 10 to 20 per cent reduction in capacity could flow from the RDR measures, we have obviously deemed that to be acceptable or we wouldn’t be going ahead.”

He was responding to a question from committee member and Conservative MP Mark Garnier, who said that while the RDR is not wholly problematic, a significant proportion of IFAs are thinking of leaving the industry.

He said: “There is a significant proportion of IFAs, up to 30 per cent who are now thinking of coming out of the industry altogether.”

Sants said: “In my experience in the lobbying process you tend to get these extreme statements made which do not necessarily come about in practice.”

FSA chairman Lord Turner said the reduction could be good news for consumers who may see a reduction in administrative costs.

He said: “Some exit of capacity from the industry which is therefore an exit of administrative cost may be in the interest of consumers, it a cost which is being absorbed.”

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There are 62 comments at the moment, we would love to hear your opinion too.

  1. Monumental arrogance

  2. “FSA chairman Lord Turner said the reduction could be good news for consumers who may see a reduction in administrative costs.

    He said: “Some exit of capacity from the industry which is therefore an exit of administrative cost may be in the interest of consumers, it a cost which is being absorbed.””

    Supply? Demand? What colour are the trees on Lord Turner’s planet?

  3. If the”exit of administrative cost” meant a reduction in staff at the FSA, due to a lesser number of IFAs to oversee, then maybe it is “a cost which is being absorbed”. If not, then the levies are spread over a smaller number of advisers leading to an increase in fees (nee administrative costs).

  4. Well that’s alright then ! If Mr Sants feels that it is acceptable for 20% of advisers to lose their livelihoods then it must be. How sad that civil servants should wield such power at such a cost to the detriment of everything and everyone. When this travesty is reviewed, post 2012 it will be asked ‘ how did we ever allow this to happen ?’ Will Mr Sants and his cronies care, of course not he will be long gone, still employed and overpaid.

  5. Victor Jannels - AToM 23rd November 2010 at 1:05 pm

    Has a poll been conducted to establish the needs and preferences of the general public on this subject? The consumers deserve more choice – not less. Whilst I often comment that I believe in regulation I fail to understand how reduced advisor numbers will be beneficial to consumers in cost terms. In fact, the contrary might apply under the law of supply and demand! These comments do not tally as sensibly and properly thought through.

  6. Frightening that these clowns are running the financial services industry coming out with statements like that!

    What would be acceptable to me is a proportionate reduction in FSA jobs at the same 20% level or maybe 2 FSA jobs for 1 IFA. That should drop the FSA fees the rest of us have to pay.

  7. Wonder how many banks, bankers and their advisers have been factored in to be lost from the industry ? That would seriously reduce costs to the economy for all of their cock ups (see Ireland still ongoing) and the industry from misselling claims

  8. Here’s me thinking that the FSA actually want to extend the availability of good financial advice and wish to implement a free advice service….paid by FA’s.

    FSA = FARSICAL!

    Maybe the abolition of the FSA administration costs may be in the best interest for consumers!

  9. Would Mr Sants and Mr Turner please do the honourable thing and lead by example and reduce the board of this self-appreciating quango by 20% – I doubt it. To suggest that any of us can and should take actions with the knowledge that 20% of those who fund us will be put out of work would be comercial suicide – but again that’s the real world to which neither of these gentlemen (loose term) have ever belonged.

  10. So a 20% attrition rate amongst the IFA population is acceptable, is it, Hector? And to achieve what? Reduced access to affordable independent financial advice, largely for the sake of a bundle of exam passes?

    Rather than just writing off and consigning to the scrap heap 20% of the current IFA population (which accounts for a still reducing 2% of all complaints referred to the FOS, so please spare us the stale old mantra about “encouraging better consumer outcomes”), how about tackling the biggest and most systemic problems within retail financial services?

    Ah ~ a bit of a problem that one, isn’t it? Not that the FSA is in any way subject to influence from the Treasury or anything like that (so why have you had to appear before the TSC?). It’s just that whenever the FSA starts making noises about doing to the banks what it’s been doing to the IFA sector for the past ten years, somebody gets on the phone to the Treasury and tells them to call off the dogs or else we’ll up sticks and relocate outside the UK. And that’s why we’ll never have a level regulatory playing field, despite the FSA’s tired and battered old claim to be independent of government. You aren’t.

  11. This IFA thinks that a 20% reduction in regulators is more acceptable.

  12. For Hector read Lord Cardigan. Having decided to proceed with RDR on the basis not to would mean losing face I see a Charge of the Light Brigade coming up.Where`s my horse!

  13. Response please Aifa. Or is this another insult you’re going to take on the chin?

  14. Scarlet Pimpernel 23rd November 2010 at 1:27 pm

    Maybe the Supermarkets and the Corner shops should operate on an RDR system?
    Or are they running a business. We can’t all make millions by working for the FSA; like the famous Two! – and of course the Banks.

    Go on lets waist more Millions; we only give it away anyway!

  15. Until we have “accountability” the FSA can do and say what it likes as it does not affect them at all, if they get it wrong or god forbit “right”.

    I just hope some of those IFA’s who find themselves in a position of losing their jobs, and businesses decide to take a “class action” against the FSA, if that is possible which I suspect may not be they are so well protected by statute.

    Mr Cameron instructed The Queen to say

    “my Government’s legislative programme will be based upon the principles of freedom, fairness and responsibility.”

    Don’t see any of that here or at the FSA so maybe we should all write to the Queen as she has more clout than we do and will probably get someone to listen!

  16. As a supporter of the aims and principles of RDR I have to say that I am flabbergasted by the breathtaking arrogance of the FSA to openly state that losing 20% of the industry is an acceptable outcome of RDR. Indeed there is more than an insinuation that this is one of the intended outcomes.

    To then use the circular logic of “if the reduction in advisers was not acceptable the reforms would not be going ahead” (ie the reforms are going therefore the reduction must be acceptable) is political spin of the highest order – indeed it is reminiscent of Tony Blair at the first Gulf War Enquiry – “if I’d have lied to Parliament I would have had to have resigned. I haven’t resigned….”

    To then compound this by demonstrating a total lack of the understanding of the basic rules of supply and demand really does reveal a frightening image of a public body with megalomaniac tendancies which needs no logic to justify its goals and works on hidden agendas.

    This blows a big hole in the laudible publicly stated aims for RDR, which is a crying shame.

  17. matched no doubt by a 20% reduction in FSA staff numbers?
    all things beings equal of course,

    that would reduce the fsa fees,

    well thats how things should work but in the real world , but maybe not in the not so real world of the FSA, find silly answers

  18. Its just insult after insult.

  19. 100% drop in FSA staff would be more acceptable.Sants and Turner are pompous fools who should not even be allowed to regulate pocket money of children.

  20. I don’t know why I am continually staggered by the arrogance of Mr Sants and the FSA, perhaps it is some hope that commonsense is not completely lacking.
    Back on the 16/07/2010 Moneymarketing had an article which stated quote
    “The FSA considered scrapping the RDR at a board meeting in March but decided to push on with plans for fear of ‘losing face’ according to Lansons director or regulatory consulting Richard Hobbs.
    Speaking at the protection review conference on 15/7/2010 Hobbs stated the FSA came close to ditching the RDR as recently as 4 months ago and claimed the regulator is not ‘particularly proud’ of the review”.
    So why is this flawed RDR process continuning just so the FSA don’t lose face ?. It a case of lets screw the IFS’s so we don’t have to admit we hav’nt got a clue!!
    Goes from bad to worse. I find it unbelievable that Mr Sant’s can deliver such statements without the Government realising how flawed the thinking behind it is.

    Perhaps we should all be writing to David Cameron to point out the obvious.

  21. I think the statements by Turner and Sants, really do confirm that they have always had this hidden agenda, of getting rid of as many IFA’s as possible.

    They must therefore deem it acceptable for the public to have access to less independent advisers?

    Did’nt the current Government, (when in opposition) deem them to be unfit for purpose?

  22. Neil F Liversidge 23rd November 2010 at 2:13 pm

    Reports elsewhere talk about a third of IFAs going, but whatever the proportion, following Hector’s logic, if the RDR will so improve the industry, we’ll need less regulators – no? How many less? Well, if a third of IFAs leave then surely we must need at least a third less regulators. But thinking about it, if the third that depart are the ‘worst’ third according to Hector’s logic then actually we can get rid of more regulators – say two thirds. To be most effective of course the staff cuts should start from the top down as the hard-working and common-sense FSA employees further down the tree earn a lot less and deliver more value. And getting rid of the upper tiers of the FSA’s management would also remove the people who, as is often reported, do all the bullying of those in the lower ranks of the FSA, so getting rid of the big-shots should remove a lot of personnel department / tribunal hassle and costs. So, according to Hector, thanks to RDR we can look forward to a lot fewer regulators who will cost us a lot less money. Hey, I’m starting to like the sound of this RDR thing! How much less in fees should I budget for in 2013 Hector, and when do you start the sackings?

  23. Hector Sants reminds me of another leader of great men, Lord Kitchener. Don’t worry chaps, once we are over the top we will wipe out the enemy! Unfortunately for us, the enemy is within. A regulatory body that is so fat and up it’s own posterior that the statements that come out of it from those in command are beyond utter belief. Recently we have been compared to a McDonalds worker and now we are being told that it may not be a bad thing to see 20% of your numbers lose their jobs, still I suppose those in that number could always walk straight into a job selling burgers!

    All it seems to be is about cost, cost and cost and it has always been that way since the advent of LAUTRO and it’s fellow breathren over 20 years ago. They haven’t helped the consumer they have destroyed a savings habit in this country and replaced it with easy credit instead. The lower the number of advisers the lower the amount of money that will be placed into savings, the lower amount of protection provided in the event of a personal catastrophe and of course, with this country heading straight on for a pension armagedon, of course less people will be encouraged to save into their pensions. Still that doesn’t matter as long as the costs are driven down.

    I know what I would call these two individuals, unfortunately I think that my comments would be removed.

  24. What a donkey this Hector is!!!
    If you reduce a donkey by some 20% would it still be a healthy donkey? I doubt it.

  25. If the “Bad guys” made up the 20% and the “Good guys” the 80% remaining then Sants would have a point BUT this is not the case.

    Expensive and Bad advice is being given every day by advisers of all kinds.

    Being certified or chartered, being a new model adviser, charging by fee or having won a National award from one of the pinks does NOT mean that you will be ethical and give good advice.

    The FSA clearly disagree but I doubt if the RDR will reduce future mis-selling by any measurable amount. Crooks of the future will simply have a few more jam labels on the wall.

  26. We have the costs bute where are the benefits 23rd November 2010 at 2:40 pm

    A 20% loss in IFA is acceptable for the benefits to be gained but waht are these benefits? Will we have a 20% reduction is FSA costs and staff? Oxera, the market research firm employed by the FSA to assess the costs and benefits of the changes, expects the net present value of the compliance costs to the industry to reach between £1.4 billion and £1.7 billion. Worryingly, the estimate in 2008 was £600 million. The latest estimate represents an astonishing 180% increase.

    Under RDR charges will be higher, so sales of financial products will decline. The majority of adviser firms expect a reduction in turnover. Consumers with smaller amounts to invest are much less likely to seek advice if they have to pay for it explicitly. Smaller firms of IFAs are the most likely to exit the market and as we know that means a predicted 10,000 firms. Even AIFA warned 16/11/10 that net fund sales would drop by £1.8 billion if the RDR caused a 10% drop in the IFA population.

    Oxera, has assessed the costs but where are the benefits?

  27. Somebody has to admit that an unintended consequence of RDIP will be a reduction in consumer access to advice which will lead to a worsening of the savings gap which will lead to people being worse off in retirement which will lead to more reliance on the State.

  28. Is it just me or does he have an uncanny likeness to the Grinch? It would make sense as it’s coming up to christmas and he seems to be trying to spoil it (not just for IFAs but for all consumers of financial advice).

    You’re a mean one, Mr Sants…

  29. I took 10 years for Polorisation rules to be scrapped. How long for RDR to be scrapped?

  30. Its ok then for thousands of IFA,s plus their support staff to lose their income, whilst the motley two go onwards and upwards increasing their salaries/goldplated pensions and expenses. Winston Churchill would be turning in his grave.

  31. I clearly live on another planet!!

    A man too arrogant to realise he is wrong and who couldn’t care less anyway.

    If only the likes of Sants, Fred the Shred etc. were really accountable for their actions.

  32. “FSA chairman Lord Turner said the reduction could be good news for consumers who may see a reduction in administrative costs.

    He said: “Some exit of capacity from the industry which is therefore an exit of administrative cost may be in the interest of consumers, its a cost which is being absorbed.

    Lord Turner how much so far has it cost the FSA to implement RDR and secondly the banks are driving all costs!!! not the IFA community

  33. FSA fees and staff to reduce pro rata? 23rd November 2010 at 4:08 pm

    He said: “Some exit of capacity from the industry which is therefore an exit of administrative cost may be in the interest of consumers.”

    Why thank you Hector! So we can expect a pro rata reduction in FSA fees and staff in line with the reduced work load?

  34. I am confused. How does reducing capacity lead to direct reduction in admin costs?
    Surely there might be some reduction but due to the loss of economies of scale the average cost for each consumer will increase.
    Also is not IFA advice cheaper for the provider than direct sales (otherwise how could they afford to pay the commission) hence surely less IFAs = increased advertising to reach clients directly = increased costs!

    A very strange statement made by the FSA and I would like to see their thinking / the evidence behind this.

  35. How many civil servants are losing their jobs and they are bleating. If as 20% loss were to be taken on in any other industry the unions would be up in arms.

    Perhaps that is the answer for us all to join a union and start fighting back. Any unions out there to which we can become affiliated?

  36. Has the FSA taken legal opinion? I know someone who has and the FSA is in for a bit of a shock.

  37. RDR Change Resister 23rd November 2010 at 5:24 pm

    No way can we allow 20% of IFAs to fall by the wayside. These underqualified commission hungry salespeople masquerading as advisers with 20 years mortgage experience claiming to be investment experts (or losers as we call them) are making the rest of us look good!!!

  38. The comparisons between Hants & comrade Stalin are amazing

  39. Precisely and now even Lord Turner has stated openly that bank tend to give inappropriate advice, but will that make any difference? I very much doubt it, as it means that the FSA and its predecessors have signally faled to apply the same stringency to regulating the Banks as they have the IFA community, which lacks the same clout and insider influence.

  40. And is that 20% of the good, the bad, or just the plain ugly ?

  41. LEGALITY

    The European element has been largely ignored and it could be open for an IFA or trade body (wake up AIFA) to challenge RDR under EU law.

    THE ISSUE

    RDR will bring about a position of disharmony between UK and EEA investment firms and may also breach EU law. The problem is that if and when RDR can be challenged in the EU courts it will be too late for many UK IFAs*.

    THE DETAILS

    European Union law operates alongside the legal systems of the European Union’s member states and where conflict occurs, takes precedence over national law.

    RDR IS SUPER EQUIVALENT

    Does such a conflict exist? All 3 aspects of the RDR – prescribing the conditions for a firm being able to hold itself out as “independent”; prescribing methods of remuneration; prescribing criteria for competence – are super-equivalent to comparable provisions in the Markets in Financial Instruments Directive aka (MiFID).

    THE FSA ACTIONS SHOW ACCEPTANCE THAT THEIR ACTIONS ARE
    SUPER EQUIVALENT

    Under EU law super-equivalence is not permitted, which is why the FSA are unable to apply their proposed rules to inwardly passporting firms, as this would bring the FSA into direct contravention of Article 31 of the L1 Directive (2004/39/EC). NB: Firms passport into the UK from the EU just as UK firms can passport into EU states via the UK. This two way traffic is the corner stone of EU law and the principle of trading harmony.

    This is why the FSA have confirmed they will not be applying the RDR rules to firm’s exercising Article 31 rights in their draft notification to the EC (ref CP09/18 Ann B pars 26 and 51).

    RDR CONFERS A COMPETITIVE ADVANTAGE ON EU ADVISERS OVER UK ADVISERS

    EEA investment advisers will be able to provide investment advice to UK customers under the more relaxed MiFID regime, but UK advisers will be restricted in providing the same MiFID service to their own UK customers. If the FSA is allowed to proceed, not only will many IFAs be unable to continue to pursue their profession (which is also contravening EU rights for citizens), but the IFAs that remain will face heightened competition from other EEA states, and will be unable to respond because their hands are tied, again a breach of EU law.

    COMMENT

    The FSMA 2000 places the FSA above UK law but it does not place the FSA above EU law.

  42. With the advance knowledge of the inquisition, Turner and Sants took the opportunity to produce previously unused facts and figures. Whether these are verifiable remains to be seen.

    The suggestion that mis-selling costs £250-£500m p.a. is in itself dubious, but that it more than offsets the projected £200m p.a. cost of the RDR seems preposterous.

    Lord Turner, in particular, is considered erudite and cerebral and it is a shame that he has not used his faculties to unearth the daunting and dismal reality that the RDR is not fit for purpose because it does not solve any of the industries real problems.

    For the same reason it will not solve any of the imaginary ones either.

  43. How can a reduction in 20% of ifa’s will lead to lower costs.

    How?

    In theory the costs could go up. Take an IFA practice with 2 advisers and one administrative staff and one office. If one IFA leaves the administrator still has to be paid as well as the cost of the office so the actual overheads increase for the remaining IFA pushing up the cost to the consumer.

    Simple maths Mr Turner.

  44. If a 20% loss is seen as acceptable I wonder what the original target figure is/was??

    40% ? 50%? Higher??

    We have all been writing to our Mp’s about RDR etc. Why not ecourage our clients to do the same?

    Politicians fear the voice of the voter.

  45. What does AIFA intend doing in response to this statement? That’s DOING something, by the way, as opposed just to saying something.

  46. Seriously? What is Hector on?

    20 % reduction in IFA’s, decreasing supply will lower costs?

    Increasing the necessary qualifications for an IFA to practice, which costs money to study for and take will also decrease costs how?

    Continous learning and study plans is time spent not with clients, thus not making money, how is that decreasing administration costs?

    Yes, many IFA’s threatening to leave the market might not leave, but its obvious to anyone why he is getting this kind of reaction – except maybe the FSA themselves.

    Lord Turner obviously thinks the decrease in admin costs will be because bank advice is cheap, and more consumers will end up being advised by them, and they have to follow less rules (and struggle to follow the rules they have anyway……..)

  47. I’m confused also…..If there is a 20% reduction in IFA’s but we represent circa 2% of complaints where is the cost saving when the banks, etc, consist of the remaining 98%? An explanation from Lord Turner on his basic lack of mathematics would be interesting.

  48. For many years we have suggested that the FSA had a hidden agenda to get rid of IFA’s but this was strongly denied from all quarters. Now it has openly been stated, are we entitled to redress ?

    Now let me see. Reduce supply by 20 % and keep the same level of demand… Oh yes, prices will fall !!

    Perhaps a CPD course for Mr Sants and Lord ha ha on basic economics wouldn’t go amiss !

    And quick…

  49. The lightswitch keeper. 26th November 2010 at 9:33 am

    Great, looking forward to 2012 and being able to charge overtime for turning off the lights….

    Thanks Mr Sants !

  50. Mr. Jogga Singh Teidy BA (Hons) RGN Cert.Ed DipWSm 26th November 2010 at 1:12 pm

    I say, this is precisely the problem with all aspects of our governance, be theyelected or appointed…they from their comfort positio of public funded salaries feel they have right to undermine concerns, thereby leading to decision making that builds stresses into society unjustifably…while they are well clear of the decesions made…

    this is so with our so called learned judiciary, our home office minister previous…Harriet Harmon in forced testfyfing and prosecutions i so called domestic violence…

    our contition allowed beheading of these such for gross incompetance and disservice…that part of the constitionis still available I tak it…but simple removal of those who lack the capacity to serve equitably will do.

    I have not read the RDR, but would willing to go through and help implement it as a volunteer…elected and appointed positions are power based to perform a duty…it does not mean those in such positins have capacity to serve and make all happen ok…our poitica demise eveywhere validates this observation

  51. What an arrogant man. He is up there with Alistair Campbell and the other arrogant idiots who think they know what is best for us.

  52. This email bit of correspondence has been received today and you can see that the FSA make the blood boil. 48 comments before I get my chance to sound off.

    There is no one figthing our corner. What are the FSA upto? Has anyone asked the public what they want? How about getting more banks and IFAs on the market place to create competition? It strikes me that the FSA want the few banks that are left to have a monopoly. FSA are well served by the “fines” received by these banks- we all know who they are- Lloyds TSB Halifax etc. and RBS.

  53. Our man Sants is at it again.

    -20% IFA, should reflect in the FSA Budget. The minus 20, will not be paying FSA fee’s or requiring the service.

    I would recommend a -30% of FSA headcount.

    If the FSA constructively forces people out of the industry are the unnecessary departed, still liable under the FSA rules and can the staff members of the IFA firms sue the FSA for constructive dismissal.

    Finally as the FSA the authority to determine the number and qualification of IFA’s.

    The FSA would appear the basis for a Public Enquiry.

  54. “FSA chairman Lord Turner said the reduction could be good news for consumers who may see a reduction in administrative costs.”

    If the RDR goes through as expected, we can assume that there will be 20% less IFAs, the remainder will be more professionally qualified than before, if we follow the FSA thinking.

    It would seem to me that that would make IFAs more of a scarce, and valuable, resource. I can’t see how that can reduce the cost for consumers.

  55. Yes because a further increase of 20% in redandancy is ‘acceptable’ how about reducing the FSA by 100% and give us all a break.

  56. What planet do the FSA live on. A twenty percent reduction in IFA’s would mean a reduction in the service to clients, do the FSA care about clients? no they do not, unless they are hoping their friends at the banks will pick up this business.

  57. So its seems the real objective was to reduce IFA population.

    What a bunch of Ex-bankers !!!

  58. WE CAN’T HEAR YOU AIFA ET AL

  59. Pompous, arrogant, illogical twits – how did they ever get to the position where they can wield power in this way. It’s an absolute disgrace that such people have any influence over anything let alone almost monopolistic control over such an important part of the UK economy. And where does parliament fit into all this ? !

  60. The best way to cut costs for consumers is to reduce the size of the fsa and reduce the “fat cat” salaries of Herr Santz and his cronies

  61. I think a reduction of 100% of FSA staff would be even more acceptable.

  62. Crazy gang IFA member 29th November 2010 at 6:39 pm

    ‘FSA chairman Lord Turner said the reduction could be good news for consumers who may see a reduction in administrative costs.’

    What is this idiot talking about ???

    Yeah that seems logical.. so instead they get no advice at all. This statement by this bafoon is absolutely astounding and completely unacceptable. I tell you what lets get rid of 30% of the House of Lords, now, that would save the general public a significant amount of expenses!! and climate change a significant amount of hot air!!!

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