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IFAs still in denial over move to RDR

Kerr: ‘Denial and anger stages’
Kerr: ‘Denial and anger stages’

Industry experts have warned that many IFAs are still in denial about the difficult business model transition that is required under the RDR.

At a Money Marketing round table on adviser-charging last week, industry representatives expressed concerns that a large number of firms have failed to get to grips with moving to an adviser-charging model and offering a clear definition of their business model under the RDR.

Ernst & Young director of financial services Malcolm Kerr said: “Some intermediaries are still in denial. For those advisers, loss of commission is like going through a bereavement and they cannot move past the initial denial and anger stages.”

In the past, E&Y has predicted that the RDR will see the number of investment advisers in the UK drop from 30,000 to 20,000.

Kerr added: “My worry now is that in 2013 we will see an even greater drop in adviser numbers as people start trialling their new business model and start practising their pitch around charging fees. They need to begin practising now.” Institute of Financial Planning chief executive Nick Cann said: “When you talk to advisers, they are a mile away from having clarity over what their proposition will be.

“A lot of national IFA firms and networks have not communicated to their advisers the importance and the priority that needs to be given to putting a new model in place given the timetable we are now facing. There has been too much noise about qualifications.”

Syndaxi Chartered Financial Planners managing director Robert Reid said that at a recent financial planning meeting, only 25 per cent of advisers were registered for VAT and 75 per cent had never invoiced a client for payment.

He said: “The greatest concern I have is around the bulk of the new model adviser group who think they have got it all figured out because they have been doing commission offset for years. They think they are sorted but they are nowhere near.”

Personal Finance Society head of technical services Rebecca Prestage said: “A lot of advisers are not fully aware of how difficult this transition will be.”


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

  1. There is of course only so much you can do given the information we have at present. Adviser charging will require a great deal of clarification, VAT is or is not a problem depending upon clarification and the delay of the Platform paper makes things even worse. Understandably qualifications are the headline target but in truth most of the rules about qualifications are known – the adviser charging rules are not known and in some cases unworkable.

  2. We are not in denial, but things have a habit of not happening or at worse the rules of the game change again.

  3. Julian Stevens 2nd June 2011 at 9:42 am

    Is adviser charging by deduction from the sum/s to be invested into a product really going to constitute that much of a change from the existing commission model? The only difference will be that the client will have to agree to the amount, and a lot of IFA’s are already quite open about their charges anyway.

    As for VAT, on that we await clarification from the FSA and HMR&C.

  4. We are all retiring, it`s not worth the candle anymore, hasn`t anybody realised this yet? We keep telling the FSA and the clever industry experts ( Nic Cicutti etc) but still it hasn`t dawned on anyone execept us.With an average age in the late 50`s and having struggled through countless regulatory re-organisations and exams and with the the RDR repeating this cycle once again and an yet another on the horizon courtesy of Europe the question is why us? Accountants and Solicitors have historically overseen much greater calamities but with very little in the way of re-training/exams. Why us?

  5. Jennifer Nicholls 2nd June 2011 at 9:52 am

    I would somewhat agree from other IFA’s that I have spoken to.
    The FSA will have a massive job on their hands to police everyone. So when mistakes are made, will the FSA just take away everyones license to work or will IFA’s have to re apply, which takes months.
    How will they feed their families while they can’t work. We have spent so much money on more qualifications and changing the business model but how are they going to police it all. They can’t reglulate the real dangerous areas like the banks so what hope is there?

  6. @Julian – I agree with your comments in so far as they apply to lump sum investments / pensions etc.

    Where many firms will find difficulties will be where they are reliant on regular premium ‘indemnified’ commission which will cease overnight.

    IMHO a large challenge for many will be the education of consumers that advice isn’t free (notably where distributors are retail banks).

  7. Its the the FSA that is in denial not us.

    How can anyone make long term plans when things have a habit of changing so often.

    The VAT question must be answered for one.

    Also as Hugh says, how many of us will actually left, I predict it will be worse than expected, numbers will drop, fees will have to go up which in turn……..
    Banks win – again!

  8. Can sombody just help me here.

    Many years ago when companies took all their charges upfront it was deemed unfair by the PIA as in the first couple of year nothing was invested.

    Now I may have this totally wrong but is “Adviser charging” not the same.

    I may want to charge a £300 fees for an £50 per month ISA so for the first 6 months nothing gets invested.

    (the figures are to prove a point only)

    Have we gone backwards?

  9. Great! – less competition for the rest of us.

    It’s hard now to summon up much sympathy for those who won’t be ready (if people have chosen to retire that’s fair enough). It’s not as if this is a big surprise – it’s a bit like passing four signs on the road at one mile intervals warning you that there’s a speed camera ahead (and precisely where it is) and then going through it over the speed limit.

  10. Wakey Wakey everyone. Who really believes that the public will pay a fee to arrange a pension, or an isa or anything for that matter. Maybe its about time that someone carried out a survey on the public to ask them what they think. I would predict that only EXTREMELY HIGH NETWORTH clients will do so. Even then who will pay a fee close to what is given by the product provider.

  11. Terence Martin 2nd June 2011 at 10:16 am

    Paul is quite right when he makes the point about educating consumers as to why advice can’t be given away. If consumers had a better understanding of what it takes to dispense financial advice then perhaps more of them would begin to understand why knowledge and expertise is valuable. Advisers tend to hide their light under a bushel when it comes to putting across what they have to do and know to be an adviser. So I’ve written a guide which puts the case for financial advice and the reasons why it can’t be provided for nothing. Happy to e-mail a copy to anyone who’d like to see it.

  12. Re Steve Laird
    If the FSA were operating the speed cameras, the four warning signs you mention, would probably signal “could be; may be;possibly will be; speed cameras ahead” and once you had passed the camera another sign would tell you that no responsibility would be taken by the sign maker for any unintended consequece of misinterpreting the signs.

  13. There is still a lot of confusion about fees and existing commission as is obvious from the comments so far. Until this is resolved it is very hard for anybody to change their business model totally until they know what they can and cannot do. This is not new – CP121 some years ago now was based on IFAs taking fees and nothing ever came of it. We are members of a Network and yet all the advice and business planning models we have seen have been put forward by product providers. There are some IFAs who claim to be totally fee cased already but when you get to the bottom of it a lot of it is charges taken from the contract as fees. Commission under another name. We have been trying for a number of years to move clients to fees and they are for the most part very reluctant to do so – which begs the question why are fees seen as the be all and end all? Is it something to do with the VAT that the Government stand to earn? Advice will certainly not be cheaper going forward.

  14. Sooner or later the penny will drop – only a handful of genuinely HNW clients will pay realistic fees. Those who will have the biggest shock are the smug IFAs embracing the change who will have a pretty steep learning curve when they try billing their clients. Why the debate on VAT? – Advice is vatable and always has been – arranging a financial product is VAT exempt. HMRC have been pretty lenient to date but I doubt that will continue. Best of luck to the new breed of fee chargers. Try charging for the 80% of admin that makes up your week.

  15. Most retail businesses faced with a complete ban on wholesale supplies would be looking to sell something else…

  16. Steve Johnston 2nd June 2011 at 11:16 am

    @Terence: could you please email me a copy? My email address is

  17. Me please Terence

    It doesn’t really help when somebody says “great less competition for the rest of us”

    Because more competition will drive down the hourly rates and thereby possibly make the model unsustainable.

    At the end of the day it should be consumer choice

  18. @John c
    People from all walks of life ARE prepared to pay a fee where they can see the value of it, it is properly explained and it not unfair. I’ve been doing for years and not all my clients are HNW. In terms of lump sum non penions investments there is clearly no difference to paying a separate fee or having it taken out of the investment. Long term savings are also often better off from a fee (perhaps consisting of the first premiums going to the IFA by S/O to keep in budget) compared to small deductions from every payment. Clear and transparent.

  19. John; Someone has. It makes depressing reading. If you e mail I will send to you.

  20. fees: my adviser (for I work at a prod prov) made a complete cockup of charging; we agreed up front £2200 for advice and setup of 2xlife and 2xCI. But the IC doc had £1000 as the charge. He then went on to ask for another £2800 when we got onto the CI policies and also moaned the entire time that “it wasn’t worth it”.

    To make matters worse, the post-sale illust came back with guess what? commission still included.

    not exactly an ideal experience for me, who knows a thing or two about the industry and was open minded about advice charging. A normal person would have been totally ripped off.

  21. Whilst I agree in part with David C in regard to lump sums, I do think regular premiums will remain a bit of a problem for consumers and would be a good reason for an inustry led factoring system along the “pass loans” for FSA fees model (I know at least one network is offerring this before Julain reminds me :-)_
    As to Terence’s comments about it being good for those who are not ready in 2013 to go out of business so he can end up with their clients, how is that fair to the consumer? What if they want to keep their existing adviser, why shoyld tehy be forced to find someone else?
    I am well on target now to be RDR compliant by Jan 2013, but I for one do NOT want to see an exodus of advisers as if you think about it F pack fees and levy’s will be spread across a smaller pool and from my experience when asked to cover a larger client base of two branches (I once was a bank adviser for my sins), my productivity went DOWN along with my “ticket value”, not UP, simply because I wasn’t working anymore hours (it was physically impossible). The reason was management meetings doubled and so did all the no productive paperwork and unless the F-pack cust headcount, the costs will remain the same and the amount of papers they put out will remain the same too, but will be disproportianately effecetd by a drop in IFA numbers.
    AS I have said before (and the Platfrom paper’s delay implies) the RDR deadline should always have been a non specific date based on each area being finalised rules wise BEFORE having an agreed period before implementation. If teh paltfrom paper gets delayed again, can RDR realistically be implemented on January 2013?
    Should we all be expected to rush changes, when careful deliberation AFTER the FSAs final papers and a bit of testing by firms whislt the old rules are in force so that changes can be made would make more sense?

  22. I think the worm is turning and clients are becoming more willing to accept fees.

    Nobody wants to pay a fee to be sold a product. That won’t change.

    So change what you do. Join the IFP get your CFP licence and become a real financial planner.

    I have and life is looking brighter. Until recently most prospects who weren’t referred and didn’t know how we worked thought we were mad when we pitched our fees. We accepted that we were only going to engage a certain proportion of prospects.

    But in the last month alone we’ve landed two new clients that a year or so ago would have gone to a commission-based adviser.

    People are starting to understand the value of fees. I think it will be even better in 18 months.

  23. @Swanny. It seems that you misunderstood me. Less competition = higher fees= a MORE sustainable model, not less!

    @ Phil. Rush changes? – we’ve known about this for five years now! I totally accept that there are plenty of details yet to be thrashed out but the basics have been known for a long time. Consumers will only be forced to find someone else if their adviser decides not to continue, which is the choice that every adviser has to make.

  24. @Terence

    Would appreciate a copy Terence

    Cheers Colin

  25. The way I see it (I have been charging fees for the past 4 years) is you will have those clients that get it and those that dont !!

    Most of my clients that I charge fees are not HNW but they get it.

    The problem is, it stops me providing an alternative service to those who refuse or choose not to pay !! this not only affects me but most of all the clients who dont get it.

    Up will go the saving gap, pension gap and put extra burdon on state benefit system.

    We are not an industry like solicitors or accountants were advice has to be sought in most cases, we are a nice to have for the majority of people and thats not going to change post 12/2012.

  26. I think that’s most unfair. I have an afternoon diaried over Christmas 2012 to give the RDR thingy my full attention. Provided the Wizard of Oz isn’t on obviously.

  27. I recently attended a days seminar run by the PFS. One session was on VAT. The presenter also suggested that the FSA has accepted it is to costly and time consuming for fund managers to issue new share classes for their unit trusts and OEICS. IFAs will not get 0.5% trail paid from the typical 1.5% AMC. Therefore there should be lower charges on the funds, leading to higher distributions and more income tax paid by the investor. Our adviser charge will be levied separately and could well be met by cancelation of units. This could lead to CGT issues for many investors. If the adviser charge is to cover servicing and admin costs, this is likely to be VATable. So RDR produces a REALLY positive outcome for consumers (more income tax, more CGT, more VAT). Yet again the FSA has introduced something without thinking it through, withput consulting with HMRC, without fully understanding the implications.It is also too proud to call a halt and will doubtless carry on regardless leaving the IFAs and providers to sort out the mess. We will need to be paid for this and so consumers will suffer.

  28. Ann Bellingham 2nd June 2011 at 5:05 pm

    Please may I have a copy Terencex

  29. In my experience, the problem lies largely with the product providers, and it is very difficult to agree an adviser charging model until the providers get their act together. I’ll give you two examples. We decided on a model where we charge 5% of the investment for pensions, 4% for IHT planning vehicles, and 3% for pure investments like Unit Trusts, as this reflects the work involved with each type of investment. However we recently did an IHT planning case with Octopus, and although the Client Agreed Remuneration was 4%, Octopus struggled to pay us as they usually pay 2.5% commission.

    Secondly, for regular premium pensions the CAR would be 5% of each premium. If the client is a 50% taxpayer, it is essential that this fee comes from the contribution and is not paid as a separate fee, as this halves the cost to the client. However, very few providers are able to pay us 5% of regular contributions. The worst culprit is Aegon, who seem to want to pay indemnity commission, deduct it from the client’s contributions in the first year, and call it an adviser charge – but we haven’t taken indemnity commission for years!

    So come on providers – make your IT systems more flexible so that Advisers can agree remuneration with their clients without the worry that you won’t be able to facilitate it.

  30. @ Jason Ball: Why did you need Octopus to pay your initial fee? Why didn’t you just ask the client to write you a cheque instead? That’s what we do and we’ve yet to encounter a problem. After all, the client is paying the exact same either way.

  31. @ Steve Laird – As I said, I’m pretty much RDR ready. I work very much like Tim Page suggests. I am not a CFP, but I do Lifetime cashflow planning with my clients and will probably look at becoming a CFP in due course.
    The point is however well made by Anonymous | 2 Jun 2011 4:28 pm. The RDR is having many unforseen effects, not the least that the consumer is going to end up paying more tax for the same service, when a maximum commission agreement and commission offset was all that was needed!
    Talk about taking a hammer to crack a nut!

  32. Terence Martin 3rd June 2011 at 6:53 am

    Ann – please let me have your e-mail address.

  33. @Jason – whilst I agree with you with regard the problems of getting providers to give access tp flexible adviser charging, I do see anon’s point as whilst if it had been a pension you were talking about, deducting through the pension has many advantages for teh client, it is usually the reverse with pure investment contracts, particularly ISAs whre ideally the fee should come outside the wrapper rather than reducing what is left in the more tax efficient environment.

  34. @ Terence

    Hi. May i also have a copy please Terence ?


  35. John Blackmore 3rd June 2011 at 10:26 am

    I’m not in denial – I’m simply no longer going to give regulated advice

  36. Terence, please email me a copy too. What a response!

  37. @ Anonymous, I agree that in many cases the client could pay the fee separately, but in this case the money was already in trust in an offshore bond, so for the trustees to have paid a fee they would have had to open a trust bank account, and had some of the funds paid into that in order to pay us – all more work and expense for the client.

    @ Terence, if you’re still reading this would you please send me a copy of your guide to

  38. RE Terence Martin
    Can you please email the guide to

    Thank you

  39. Richard Pepper 4th June 2011 at 9:23 am

    Terrance, copy please to thanks.

  40. Why dont these people listen, are they worried about their own position.

  41. @ Steve Laird

    Thanks Steve, clearly misunderstood.


    Interesting is’nt it, such a simple concept but yet a multitude of ansers

  42. Re Terence Martin

    Please email guide to me on

    Many thanks

  43. RDR is being implimented at a time when most clients (including HNW) are cost-cutting to improve their cash-flow to counter-act rising inflation etc. Most have NOT included in their budgets the cost of paying for financial advice. Even if they have, what do you think would be the first expense to be CHOPPED?.

    Come on people, get real. I’ tried fees 5 years ago and am now out of this silly game and am still paying the debts incurred- so be warned.

  44. Jeremy Newbegin 4th June 2011 at 1:53 pm

    Steve Laird. Your smugness does you no favours. My concern if for clients left without an Adviser. Those IFAs left after 2012 will be concentrating on HNE and will greedily increase their charges. The rest of Society will be left to be plundered by the banks. RDR is I am sad to say going to fail to deliver for the majority. Meanwhile Advisers in the twilight of their careers will be dumped on that huge, and getting ever larger, UB40 mountain. Is anybody listening in those Ivory Towers?

  45. Yes please Terence

    Please send me a copy

  46. Terence, thank you for your comments,
    please send a copy to me

  47. Hi Terence

    would appreciate a copy


  48. @terence

    Can you email a copy of the guide to me please?

    Many thanks,


  49. Hello Terence: If your still reading this and not too sick of sending them I would appreciate a copy of your guide please. To:

    Many thanks,

  50. @Terence

    I would be grateful for a copy to

    Many Thanks.

  51. Incompetent Regulators Awards Team 6th June 2011 at 11:49 am

    FSA still in denial about the flawed RDR!

  52. @terence.

    Might help if you had the email address as well!


  53. Your guide would be very much appreciated Terence. email to

  54. @Terence

    I would be grateful for a copy to
    Many Thanks.

    Edward T

  55. Terence, please can you send me a copy too.

    Many thanks.

  56. @ Terence,
    Please may I have a copy of your guide.



  57. Terence Martin 9th June 2011 at 1:21 pm


    Is that e-mail address valid?

  58. @ Terence Martin

    Just to say many thanks for the copy .. will digest this weekend..

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