A couple of years ago, I remember writing I believed the RDR’s insistence on higher qualifications for advisers offered significant opportunities for IFAs.
At the time, and whenever I have put forward similar arguments since , the response from IFAs has been negative.
I am going to rephrase the argument slightly and add to it because it is not clear to me that many readers have grasped the point I am making.
Let me start by pointing to comments last week by British Bankers’ Association chief executive Angela Knight, published in Money Marketing. Knight is quoted as saying “some issues still need to be discussed” in relation to the RDR.
She adds: “We are worried that the RDR will cause the market to shift and the choice will be between taking expensive advice or not taking advice at all.”
The BBA’s way out of this conundrum is simplified advice.
There have been massive differences over this issue. Both the ABI and the BBA want to see some variant of simplified advice – where a relatively unqualified telephone operator or a branch-based salesperson offers a basic range of financial products to consumers using a script-based decision tree.
For sections of the insurance industry that do not rely on IFAs for distribution, as well as the banks, this would allow widespread selling without any onerous requirements in effective regulation or, crucially, financial qualifications.
If you look back at many of the ABI’s submissions over the years, as well as published statements by the BBA, it is clear they see this as the silver bullet that would allow them to remain competitive vis-à-vis the IFA market, if not help to decimate it.
It would free them from the expense of training salespeople to an “unnecessarily” high level, as well as the require-ment to give best advice at all times.
For advisers who fondly believe few, if any, of their high-net-worth clients would not find themselves doing business with a bank salesperson, think again – simplified advice would for the first time allow the banks to rip the IFA market apart on price and convenience.
The big stumbling block to these plans, amazingly, has come less from vigorous lobbying by organisations such as Aifa, which has been almost silent.
In fact, the reason that simplified advice is not already an intrinsic part of the RDR is thanks largely to sections of the IFA-facing product providers which understand the dangers better the trade bodies supposedly representing advisers.
The other problem is that the FSA, which has always been sympathetic to the idea of simplified advice, cannot quite make it work either. Not for lack of trying, mind you. Over the years, the regulator has tried to set up a number of pilot studies to see how it might work. Each time, it has found that there are major problems in the way so-called simplified advice is given that could potentially leave consumers financially worse off.
What is also clear today is that, unlike 15 or 20 years ago, when it was core to all the arguments put forward by IFAs, the issue of status disclosure is almost absent this time round. Bizarrely, the only exception is the discussion over restricted advice and whether advisers who become restricted ought to be allowed to stay within Aifa.
If the above is true, and I believe it is, then it raises questions about what IFAs’ attitude should be to the issue of qualifications. Far from them being an onerous addition to advisers’ ability to carry out their profession, they are part of the bulwark that IFAs must insist on them in order to defend themselves, the other part being unrelenting opposition to the concept of simplified, and therefore under-regulated, advice.
Of course, if the insistence on higher qualifications for all is something that IFAs embrace rather than reject, it raises another key question about how they differentiate themselves in the market after the RDR.
If everyone – life company salespeople, independent advisers and bancassurers – all have the same qualifications, then the way IFAs defend and expand their market is by having a better, nimbler, more service-driven efficient way of doing business than their rivals.
Ultimately, the RDR’s implication for IFAs is less to do with obtaining qualifications and more to do with abandoning existing ways of working and coming up with new business plans that allow them to match and beat the banks at their own game.
If IFAs leave the industry, it will not be because they were unable to pass an exam or two but because they were afraid of a new world where higher qualifications form only a small part of the additional requirements they will face after 2012.
Nic Cicutti can be contacted at firstname.lastname@example.org