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John Lappin: Limiting the worst effects of the RDR

When I first joined Money Marketing I found an abacus under the desk. Disappointingly, it was not being used to calculate share price falls or pension projections. However, abacus or not, numbers proved vital.

These included the calculations of consultant Ned Cazalet who told the pension market it was losing money hand over fist when it switched various pension and bond contracts at the end of every clawback period. The aptly titled report, Polly Put The Kettle On, is probably one of the most influential in the retail market’s history.

A few years later, another consultant, Malcolm Kerr, told the market face-to-face advice simply could not be delivered at a certain cost. This came during the heat of the RDR debate, though it arguably had the most dramatic impact on bank-based advice.

Money Marketing, which reported these stories faithfully, has always been there in terms of these overarching narratives. We had already warned most life offices attempting to “play” in the price capped pension market faced at least a “decade of stakeholder losses”, though on some contracts it was 16 years.

That story by Adrian Cammidge was written in the early 2000s. It  made the market sit up and take notice. We had called on the services of what we termed a friendly neighbourhood actuary (every financial journalist should have one) to crunch the numbers for us and ran those calculations on an inside page to back the assertions on the front of the paper.

No one could have predicted the reaction from the pension industry would be to call on policymakers and politicians to save them from themselves by banning commission.

The life offices still left themselves a number of very significant loopholes. The original RDR handed a massive advantage to the worst channel of the lot – the high-street banks. The fund managers kept a diplomatic silence and hoped they would duck any big changes. (How times haven’t changed.)

Of course that presented MM with a huge dilemma. For years, one of the best things about the market was increasing professionalism not only measured in exams taken but in changing business models.

Yet this professionalism was used as an excuse by the FSA to put forward what was described as a consultation paper but was actually a politically-motivated, high-stakes negotiating position.

Had RDR version one gone through unmodified, it would have wreaked untold damage on the IFA market and thus on consumers too. It also paid no attention to local economics in terms of delivering advice.

Along with what was then Aifa, this editor would contend we managed to make the RDR process less onerous. We also kept stressing our belief that giving up on the goal of widening access to advice was a mistake. The Financial Advice Market Review was thus inevitable.

We and our IFA readers also said the watchdog was obsessing about advice when things were going seriously wrong elsewhere in the market (eight to 10 times earnings for a mortgage anyone?). Of course, it is very bad form to say “we told you so”. But we did. One wonders if the lessons have really been learned.

John Lappin, years as editor: 2000-2009



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