The head of the retail distribution review, Amanda Bowe, is gradually filling in the gaps within the RDR document and anybody toiling through the 111 pages will realise there are rather too many of these.
Her September 4 speech at Osney Media’s financial services distribution summit illustrated how the FSA is shaping the arguments and trying to manipulate the debate.
Of more concern is the disquieting notion that this is a done deal and that the discussion paper and subsequent consultation paper are mere charades for the convenience of implying some form of balanced deliberation.
How have I reached this conclusion? Bowe’s various public utterances have served to refute many of the criticisms levelled at the RDR and have glibly suggested that its critics have not understood or have misconstrued the content.
Something that cannot be misconstrued are her words at the Osney Media summit. In acknowledging that IFA numbers could fall, she suggests that primary advisers will fill the gaps. She accepts that primary advice has not worked in the past but says this fact is inconsequential.
More damning is her acceptance of the limitations of primary advice: “It may not represent the most suitable advice or products.”
The veil has been dislodged and we now know the thinking. IFA numbers will dwindle and primary advisers will ascend phoenix-like from the ashes of the direct saleforces. They will push a range of “simple” products which will not be subject to any charge caps.
The advice will not have to meet current suitability requirements – obviously because it does not have to be suitable – and consumers will have reduced scope to complain to the Financial Ombudsman Service.
This reads like a horror story. Worse, it emanates from a body with a statutory duty to protect consumers and to promote clarity.
Also secreted within the RDR, couched in ambiguous wording, is the inference that generic advisers may be able to arrange insurance and investments. Generic advisers will not be regulated so how will that protect the consumer? Will generic advisers receive commission? Will they have to pass exams? Will this assist the public and increase their estimation of financial services and financial advisers?
Bowe states that it is not the FSA’s role “to create markets, destroy markets or to define their structure”. Nonetheless, it is manifest that the wholesale changes suggested will do exactly this. In this Orwellian world, it is clear that that the FSA is braying: “Four tiers good, two tiers bad.” Within this variation of a state-run farm, the impact of market forces is ignored and consumers are being offered up as sacrifices to bancassurers and direct salesforces.
We are assured that potentially unsuitable advice and products are tolerable because they are aimed at the great uninsured and non-pensioned. It may be the case that some protection or savings is better than none but there is clear potential for the consumer, confused by different tiers and layers of advice, simply to continue impersonating an ostrich.
The result of diminishing IFA numbers and the consequent resurgence in the bancassurer hordes will be the very dumbing down that Bowe assures us is not the anticipated outcome. Unbiased advice is the yardstick by which we must measure advice. You can have a fee-based adviser who is incompetent or mediocre, just as a commission-based adviser operating within a specialised market such as protection may provide excellent advice. The measure of the quality of advice has no specific connection with the method of remuneration or whether the adviser is a member of a professional body, it is entirely to do with capability which becomes enhanced by product choice.
Exams and membership of one or more professional bodies might imply a positive attitude but are only an indicator. If membership is seen by advisers as a tick in their regulatory box, then they may well join up but consider how trade body membership has worked within the estate agent sector. Would anybody contend that membership of the National Association of Estate Agents automatically confers respectability and professionalism?
The likely outcomes from the RDR are potentially so ruinous that many commentators believe it an exercise designed to resolve the regulator’s irritation at having to police so many small and disparate firms.
Personally, I am veering towards Napoleon Bonaparte’s observation: “Never ascribe to malice that which is adequately explained by incompetence.”