View more on these topics

IFAs must not be afraid of the post-RDR world

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


News and expert analysis straight to your inbox

Sign up


There are 19 comments at the moment, we would love to hear your opinion too.

  1. An inspired angle on RDR Nick, I can’t help thinking that if all the negative energy that is being spent fighting the examination requirements was put to more efficient use dealing with the real issues we’d all be much better off. Joel

  2. Unbelievable.

    I actually agree with every word he has written.

    My life is replete.

  3. I think Nic is right to suggest that fear of the new world of giving financial adivce will mean some IFAs leaving the industry. Only by meeting our clients expectations, with qualified advice and personal service, can we hope to keep our clients out of the grubby hands of the banks .

  4. Charles Seymour-Cole 10th December 2010 at 1:32 pm

    At last!! After nearly 20 years of reading Nic Cicutti articles (off and on you understand), one I actually agree with. What next, the FSA reducing their fees????

  5. Seems we’re all on the same page, Nic, if perhaps not agreeing word-for-word.

    When the original RDR paper was published I responded suggesting that the FSA wanted ‘simple advice for simple folks’. The dumming down of financial advice will certainly assist the banks in their Blofield like plans for distribution domination.

    We also know that the FSA’s Thomas Huertas sees them as the means of providing advice solutions to the market .

    The real problem with all the consultations, replies and assiduous rhetoric is that you cannot pigeonhole advice. There are too many permutations and to squeeze all of these into convenient regulatory holes is impossible without destroying the very consumer-engagement ambitions that the RDR purports to encourage.

  6. Nick this was a very good article but there are a couple of things that need to be discussed as well as simplified advice and its implications.

    One of the problems that can be associated with moving to a fee-based service is that there is no direct relationship between product and the person selling it. You may ask yourself why this is such a danger, well what is stopping an accountant or a solicitor making recommendations around financial planning and instructing the client to take the product out directly when there is no advice charge within the product. I believe that this could make it harder to regulate financial services as many more people could set up as so-called Financial Planners. I already come across accountants and solicitors that give advice to their clients without the necessary registration but not setting up the individual product themselves. Surely, by breaking the link between product and advice we are going to see a rise in this practice.

    What constitutes financial advice is it simply giving advice on a regulatory product surely, this is where things start to go wrong with the new fee-charging model as currently outlined? Should tax advice come under financial advice for example?

    I would like to know what action the new regulator would take on any person found breaking the regulations on advice. Are the fines and penalties going punitive so that they protect our trade.

  7. The main reason I believe experienced IFA’s plan to leave the industry post RDR is not because of the exams or even charging fees, it is mainly because they are fed up with the ever increasing costs of being in the industry.

    Increasing costs of the FSA (nearly 1/2 billion a year now), the ever increasing cost of paying compensation for others mistakes via the FSCS and FOS, plus an unlimited liability for the rest of one’s life for all the advice they have ever given while regulated and then the many hours and costs of complying with RDR was just the catalyst for making them rush for the exit.

    Clients who they have dealt with for many years and are probably considered as friends will be the biggest losers and are unlikely to easily trust a new younger advisor even if they have all the exams under the sun.

    If degree level qualifications are so essential in ensuring good practice why is it that the compensation bill for the NHS this year is now budgeted to be £15 Billion and rising.

    Doctors, surgeons, dentists etc. all go through many years of training to get qualified and have ongoing training, yet £15 billion is one hell of a lot of money which is paid for by the “tax payer” not by all those working in the NHS unlike IFA’s who have to pay towards the mistakes of other fellow advisors which is minor compared to the NHS compensation bill.

    Why can no one see that regulation as it stands now costs far more than the benefit to consumers and they would be considerably better off without that massive cost.

    Maybe you should spend your time studying the effects of regulation and what it has actually achieved and at what cost.
    From the effect it has had on final salary pension schemes, with profit funds, endowments, general investments, the banking crisis, sensible lending and the overall financial health of the country.

    Regulation has touched just about every aspect of our financial health and has a lot to answer for in the name of protecting the consumer.

    Are they really better off, well I certainly don’t think so, so why do we carry on as if it is the only solution?

  8. Whilst not particularly disagreeing with Nic, who is always worth a read, one point he has missed in regard to IFA’s leaving the industry.
    A large body of IFA’s are experienced people, often sole traders who have spent the last 13 years jumping through the FSA’s hoops; at a certain age, nearing retirement and battle weary and facing more exams just to keep trading with the FSA’s retrospect authorisation of either having to take more exams or stop trading. People in the back end of their working lifes do not have the same capacity for ‘memory exams’ but do have experience and know when they need to refer client’s onward if required when they are out of their depth on a particularly complex product or requirement. You cannot be an expert on every section of the market, but nor will taking another exam needing 100 plus odd hours of study help them. That is what CPD is about to try to keep on top of events in the IFA market when there is a sector you want to know more about.
    The bottom line is that the tired and battle weary IFA’s
    of a certain age should be grand-fathered until the time that they decide to retire.

  9. Is Cicutti already Diploma qualified?

    Or will he be required to reach level 4 qualification, so that he can continue to write about the Financial Services Industry?

  10. Glad you have cast off the holiday blues Nic and offered a constructive and not so obviously inflammatory piece. Accepting that, who can seriously think simplified advice will encourage target driven staff to consider all of a clients needs. Who will be to blame for failures when a when a fractured approach negates to uncover a clients true requirements? The clients or the simplified advisor? I left a tied environment to best look after clients interests. I live and work in a small town where I live by my reputation as many IFA’s do. Too many large companies are faceless and will never take the responsibility or duty of care clients deserve and some obviously require. I am not anti-exam and think the MMR is likely to prove far more destructive than RDR anyway. Banks have led the FSA by the nose on many matters and I feel this is why so much resentment and resistance has been shown to RDR, not a resistance to self improvement. The new model advisor group highlight this well but it is also wrong for an ill informed few to have such a callous disregard with how their actions will impact on so many.

  11. Nic,

    Don’t you feel better heading into the weekend having connected with some readers instead of alenating most of them. Assuming you get paid the same amount for the good as for the bad the future is bright – if not Orange.

  12. Nic,

    I gave you the typo for free.

  13. Has Nic taken an intelligence pill ?
    Or has the wind changed?
    We have a TSC chair that actually knows what he is talking about we other TSC members that know what they are talking about and we have quite a few MP s who are concerned enough to put them selves out to ask what the hell is going on?
    At last we are now talking about consumer choice , costs and outcomes. The RDR is the only proposal in modern Briton that advocates taking us backwards to the 1970’s to poor expensive products punted out to the masses and a small elite being able to afford decent advise be it tax, investment or pension.

  14. Michael Fallas is right. It is not the RDR which is the issue or certainly qualifications for the majority of advisors, it is the constant drip drip drip of regulation that is eating away at our souls and the will to carry on in the job.

    Once RDR is out of the way there will be some new initiative. Just look at what we have suffered under regulation and what good has it particularly done. We had polarization, TCF and now RDR just to name three initiatives recently. In addition to this we are all trying to keep up with the legislative changes on pensions, investments and all the European directives that come our way. Finally, we have to try and see our clients through the markets of the last ten years which by no means have been easy.

    Perhaps if Nic Cicutti was under the same degree of pressure that advisors were under he might be more understanding.

  15. Simplified advice, simplified products translates into “sell any old rubbish”.

  16. The section of this piece which catches my eye is “Over the years, the regulator has tried to set up a number of pilot studies to see how it [simplified advice] 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.”

    I think you’re a bit out of touch, Nic ~ well, massively out of touch, actually. The banks have for years operated a simplified advice model and the results, in terms of rendering consumers financially worse off, are plain for all to see. Or hadn’t you noticed?

    Worse still, the representatives of these institutions don’t even have the decency or honesty to own up to the fact that the “advice” they provide is simplified (for which read extremely restricted).

    On several occasions, I’ve visited new clients who’ve sought advice on their existing arrangements from a bankassurer representative. Unlike an IFA, who asks the client to sign a letter of authorisation for him to write to each provider for chapter and verse as the basis for his analysis and review, the bankassurer rep has asked the client to hand over all their paperwork, following which nothing more has been heard. The providers won’t talk to a bankassurer because they’re not IFA’s and paperwork alone rarely provides everything you need to know to undertake a proper analysis and review. So nothing happens, the report never gets written and the clients are just left waiting for something which never materialises.

    Eventually, the clients realise that they’ve been given an empty promise and ask for their documentation to be returned. Some people I saw last week said they’d asked several times for their documentation to be returned but that the bank has just ignored them.

    One wonders what the response of the FSA would be to a complaint from a client that a bankassurance rep had said he’d provide them with a review and recommendations of their existing provisions and then done nothing.

    For starters, the very offer of such a service is a misrepresentation of the scope of the services that a bankassurance rep is authorised to provide (regulatory breach No. 1). Plus, of course, there’s the matter of the clients being unable to retrieve their documentation which must surely be to their detriment (regulatory breach No. 2).

    So we see “simplified advice” already in action and we can see also that in cases without number, it doesn’t achieve “good consumer outcomes” (about which the FSA is forever wittering on).

    Now, if I’ve somehow got it all wrong, Nic, and what the banks provide is in some way different from what most of us out here understand to be “simplified advice” (for all I know, it may even be better, though I’m hard pressed to see in what way), doubtless you’ll explain.

    Meanwhile, the FSA batters doggedly on with the RDR, despite the widely anticipated collateral damage it’ll cause, despite the massive additional cost of its implementation (on top of everything else), despite the fact that it may well price IFAdvice beyond the reach of many average to modest NW individuals. And the banks are just allowed to carry on regardless. Is this the great and good post-RDR world you envisage, Nic? I beg to differ.

  17. From what I have seen here, most IFAs could not pass an English exam. There is no apostrphe in the plural of IFA. Sloppy grammar equals sloppy thinking.

  18. Sloppy apostrphe reveals the anonymous poster to be rather funny.

  19. To Anonymous 14 Dec 2010 10:43. am

    You my friend, are an idiot.
    A schoolboy error. If you’re going to criticise other peoples spelling or grammar, then try having a quick butchers at your own before clicking that fateful ‘SUBMIT’.

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm