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Keith Churchouse: RDR will not benefit consumers

I feel quite aggrieved by the RDR, even though I know as well as everyone else that nothing is going to stop it. This may sound a bit rich coming from someone like me who, in principle, is easily qualified to level six and has been using a fee-based model/ client-agreed remuneration for over four years.

I am convinced those who come through the RDR process will excel. They are likely to see business incomes rise because of increased costs to pay for reaching the new benchmarks and they may benefit from the double-digit contraction in the provision of financial advice, irrespective of recent and, in my opinion, slightly ambiguous surveys suggesting otherwise.

So why am I so annoyed? Regulation changes are nothing new. Those of us who can remember as far back as 1988 will recollect what was effectively a total change in the regulations and the way retail financial services were to be provided to investors. I remember many people leaving the profession at that time.

In 1994, we saw another significant change with commission disclosure, which had the aim of reducing contract charges by allowing investors to see transparent costs and enabling them to shop around. However, the overall effect was to see costs rise rather than fall.

But I think my biggest bugbear is I am not convinced that the consumer will be better off. In fact, I think they will have, on average, less choice because of falling adviser numbers, meaning they will have to pay more for the same service they get now. And I am sure we will rinse and repeat this operation in 15 years, when those in power at that time decide that the RDR has not worked. At the age of 45, I will survive this time round but I think I will fall at the next furlong at 60.

With my gap-fill nearly complete, I am about to apply for my statement of professional standing certificate to allow me to continue to trade after 2012. I have not decided which body to use for my SPS and will enquire if I can get two certificates because of my concerns about being effectively “authorised” by one organisation. You may want to think about this, because it could be a licence for the SPS provider to print money.

2012 is a big year for us all and next year looks like it will be a turning point. With our SPS certificates nailed to our office walls, I hope that this time round, the changes will be of real benefit for all, although you can probably guess that I rather doubt this.

Keith Churchouse is director of Chapters Financial



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There are 33 comments at the moment, we would love to hear your opinion too.

  1. You don’t say !

  2. Keith, like you I am qualified and have an RDR compliant charging structure. I am totally amazed when speaking to other advisers just how many haven’t even started on qualifications. Fewer still have really given any thought to their post RDR business models which I suspect are wholly unsuitable under the new rules. This is only my personal experience, but if it is typical, all Hell will break loose at the end of 2012. I don’t agree re RDR 2 however arriving in 15 years…try 5!

  3. When outlining the RDR changes ahead, even in the simplest of ways, my clients can see that it will be a negative outcome for the majority of the public. On top of the well known incompetence of the FSA in the banking crisis, knowing that they will also be negatively affected, cost wise, just because of the FSA’s complete disconnect with the real world, my Clients have good cause to be irritated.

  4. 45? And the rest…

  5. Of course the consumer will not be better of as a result of RDR the only people who think they will be are those non elected non accountable to any one so called professionals in Canary Wharf. Nearly all of whom have never been in financial services talking to Mr/Mrs average

  6. Interesting point Keith and some food for thought on the statement. Like you I am a similar age and set up for RDR incl CAR already; however no matter how I slice this I cannot see the benefits to clients other than higher costs. In fact the real losers will be the ‘free consultations’ which were ultimately treated as lost leaders for lower income groups due to those higher costs.

    Seen to be a disaster after 15 years – I would give it half that.

  7. RDR2 won’t be in 15 years time. It won’t be in 5 years time. It will now be a running battle, changing the goal posts every other month. FSA ‘mission creep’ with those at Canary Wharf making their own agenda and usually failing to achieve any of their own goals, has been one of the most obvious problems for IFAs since the FSA came into being.

  8. Neil F Liversidge 4th April 2012 at 5:20 pm

    RDR won’t benefit consumers, but come on guys, be positive, just think of all the regulators it’s employed, and all the extra jobs created in the printing industry, and training, and in professional bodies. That’s what REALLY matters … isn’t it?

  9. I think it will only become apparent just how badly affected consumers will have become when members of the public are approaching all the “money box” type websites / programmes post RDR, with questions along the lines of “it’s all very well whichever public / regulatory / consumer body telling me I should seek Independent Financial Advice, but please can you tell me where I can get any that isn’t going to cost me £XYZ per hour?”

  10. Terence P.O'Halloran 4th April 2012 at 5:43 pm

    So! Why is RDR happening if the general consensus is that it is a failure before it starts/

    Twelve years ago I wrote ‘If Only Politicians Had Brains’. The inspiration for the book was twofold:

    The poor handling and failure to listen to farmers in the BSE crisis

    The second was a fine of £10,000 for a contrived pension miss selling case.

    The RDR scandal, for that is what it is, is a smoke screen for incompetence on a grand scale. Why are we allowing it to happen when we all agree that it will damage our clients/

    I have sent my client time sheets to the regulator, Mr Hants himself, clearly illustrating that my clients DO NOT COVER THEIR COSTS. Over time and with commissions received from one set of clients offsetting the shortfalls of others we have survived. We have been retainer based for nearly 30 years. Why are they in denial?

    It is a commercial fact that clients, customers, patrons, whatever you wish to call them offset overheads in a completely arbitrary manner. M&S have a million square feet of floor space and that is walked on by 100000 people, do they all contribute the same amount to the square footage and conversely do M&S sell in proportion to their costs?

    The RDR notion that each client will (or should) cover their own cost , or contribute precisely to their own service is an economic myth.

    If only regulators had brains we would not question their shortcomings. The fact is that they do not credit us with intelligence nor our client with the wit to make their own choices. Why are you all letting this happen?

    Six million cattle were destroyed in the name of BSE. How many financial lives are set to be ruined by RDR and the false premise that attaches to it?

  11. I reckon the RDR will be a changing mass right from the start as it simply won’t work and will be ‘metaphorically’, like a dike, sprouting holes on a daily basis. Fingers will be put into the holes as the headless chickens in the FCA rush in to fill the cracks but inevitably, the dike will burst and the UK will be in an even poorer state than it is now. The blameless banks will step in to take up the slack and the FSA / FSA overloards will receive their highly paid positions in them. The UK on the other hand will be ruined!

  12. richard wright 4th April 2012 at 7:25 pm

    I have just done a comparison of a post RDR contract and a current one that pays commission through a Pru Investment bond. A client investing £100000, in the current bond commission of 4.5 % plus 0.5% pa would be paid. On the post RDR contract No adviser fee was charged up front and just 0.5% adviser charge per annum is taken. After 10 years at a 6% growth rate there is £2000 more in the plan that paid commission than the plan that is going to be available after 31st January. Correct, RDR will help no one except the Life companies and fund managers. The FSA must be completely off their heads, They have spent millions on costing the client more money- Why???? By the way I passed all my exams some time ago now Im asking myself why did I bother!!!

  13. Cap'n Birdseye 4th April 2012 at 9:59 pm

    @Terence. We’ve put a bunch of bureaucrats in the driving seat.

  14. Many countries have banned sales commissions for financial services products and have done so for many many years. It has not led to a decrease in standards nor particularly an increase and costs are roughly the same. What it has stopped, and quite rightly, is the quick buck merchants who have plagued this industry for as long as I can remember. With income spread over the longer term, this type of indiviudual is more likley to go into smartphone sales etc. This is surely a good thing.

  15. Anon @1.51am (you really need to get some sleep !!!)

    You are missing the point entirely, Contrary to Calum McCarthy’s now infamous speech at Gleneagles which started this whole sorry mess, the current system is not and has never been broken !!!!

    Put simply as has been said by me and many others since the start, RDR will not work !!!

    Even those that originally supported RDR can now see this for what it actually is a complete dogs breakfast

  16. @Derek Gair
    Yes Derek, as I said a few weeks ago all the RDR supporters have now gone quiet haven’t they?

  17. Whats new.
    I have been stating this since the RDR idea was first mentioned.
    It will not benefit the lower income client. The RDR is for the wealthy.
    Its a complete travesty, and no one cares.

  18. What is all so sad is the total and overwhelming negative tide of comment or feedback everywhere and from every corner re: anything to do with RDR (including my own views)…yet it is still bound to come into force on the turn of the year.

    Was a concept ever so hated, loathed, and a regulator so despised by the very people that serve it.

    A long term recipe for failure I suspect.. and the inevitable attempt to revamp what will have failed in the very near future.

    Titantic and the rearrangement of deckchairs immediately spring to mind. Didn’t someone tell me that it sank or something?

  19. @Anon 1.51 a.m.

    The UK was unique in having IFAs as the major distribution network.

    As you may be aware, in other countries the tied agent is the prime source of advice/sales and we are all aware that generally this is a less efficient and elss beneficial route for the consumer.

    In sacrificing distribution the FSA is betting on the MAS/simplified advice route. As we know, the MAS is an expensive folly whilst the recent FSA paper has all but killed the potential for simplified advice to take off.

    The FSA has failed to hedge its bets, and is driving the RDR ever faster towards the road-block of consumer indifference.

    Will they learn? Do they care? Not whilst they personally carry no responsibility for their lacklustre vision and appalling performance.

  20. Regulation since 1986 hasn’t benefited consumers on any sensible cost benefit analysis basis so why should RDR be any different ?

    The ONLY way that consumers might benefit would be thru product regulation. Forget all about regulating the sales/advice process and focus on the products that the majority buy. It doesn’t matter how compliant the sales/advice process is if the product is crap.

    This, of course, will never happen as those who regulate would then need to accept responsibility for the regulated product and any future failing – never going to happen.

  21. RDR was never meant to benefit Consumers. It only ever had one aim……to benefit the Banks!

  22. What is appalling is that in all the letters pages & feedback, in the TSC investigations and reports that no-one is supporting RDR. Most are pointing out the upcoming ‘Train crash’ that is RDR and the catestrophic likely outcome and like the sinking of the Titanic, we are powerless to do anything about it. All the architects of RDR have left and like a car accident, we, slow motion like, are about to hit the wall and without seat belts. Like as has been said earlier, why have we allowed this to happen? Insurers, investment houses, networks are all going to loose as they are going to loose their cost effective distribution and income providers. Why haven’t they spoken in unison? Like lemmings we are going over the edge. SAY NO! Day it now. Start a campaign to refuse paying FEES & levies to FSA. They will then have to take notice, they can’t (although it’s their long term intention) shut down all the IFAs.

  23. Banning commission is not a negative step, inceasing qualifications across all advisers is not a negative step,improving tranparency of costs and charges for customers is not a negative step.

    Clinging onto a past that is outdated, opaque and commission led is a negative step.

    The FSA absolutely could have rolled out RDR and communicated the intent much better, but that does not alter the fact that post RDR the advice process will be much better for the client and the adviser.

  24. paolo standerwick 9th April 2012 at 8:46 am

    As the CEO of Tescos said, “The regulatory industry is growing faster than business”. That says it all and a clear message to the pro mantra RDR suckers.

  25. I would thoroughly agree that RDR has little chance of working as a viable model for the financial industry because it is based on so many fallacious assumptions. Indeed most of the structure reflects the unsubstantiated prejudices of the FSA, rather than strategies based on solid research.
    To my mind one of the central flaws is that RDR is based around advice. Whilst advisers have become a major distribution source there is no evidence to suggest that this is the most appropriate exclusive distribution model for the market overall. Or rather the most appropriate consumption model. Most other markets have a range of options, with competition not only arising between companies but also between methods of distribution. RDR is almost one dimensional.
    The UK with its usage of IFA, is apparently difference from the Continent and therefore has a different model and outcomes. But, from the consumers point of view, is there a genuine material difference.
    Probably because I take little interest in the finance industry on the Continent I hear little discontent overall. I don’t hear cries of satisfaction either! Nevertheless it does demonstrate that there are at least two viable models.
    To which the FSA want to add a different model that may or may not be viable. Whilst advisers may oppose the new model (or just accept it by default) there is little coherent statement of why it is not accepted. Merely saying “It will not work” is not a comprehensive philosophical statement of an alternative strategy or an explanation of the weaknesses in the RDR strategy. I do accept that the FSA use the Three Monkey response technique, but that does not excuse the adviser community for not presenting a better case – to the general public at least. If the FSA will not listen, find another audience.
    There is little evidence that advisers have addressed the weaknesses in their own models. For example, there is no professional conduct committee; there are no practice models; there is no real forum in which advisers can exchange practice thoughts, and build practical models. There is too little publicity to explain that the adviser model is far better than the media and the FSA make out. Comments made on professional web sites are not going to get the message across to the public.
    There has to be a better level of communication with the public that coherently explains why RDR is not a good model. And merely stating that it will reduce access to advice is not sufficient. There is no published research to confirm that the advisory model is the only effective option for the financial market. Whilst advice is an excellent option, it should not be the sole option.
    It would not be unfair to say that the FSA effectively came into an intellectual vacuum in business terms. It is therefore understandable why they brought their own model with them. What is less understandable, or acceptable, is the reluctance of the FSA to involve themselves in a dialogue. Could it be that there is too little comment of sense arising from the adviser community. Opposition, yes, but fundamentally constructed alternatives, probably not. The TSC commented that they were disappointed by the lack of substance in the adviser presentations.
    One of the earliest papers in behavioural finance was published in 1974; has it effected the industry’s approach to providing financial advice and products? Not a lot. The process of risk analysis in relation to eventual outcomes was being questioned in 1973, and probably before. Has this effected the provision of financial advice and products? Hardly at all. I would respectfully suggest that the financial business model is still based on “what it can get away with”.
    In many ways the FSA can get away with it’s crude management processes (ignoring its lack of accountability) because advisers, whilst fundamentally honest, are actually still operating in a world of make believe (but they are not alone in that). They are prepared to accept that there is a concept of “best advice”. All the sociological research and all the probability laws tell us this is rubbish. Because the media have no idea what these disciplines mean they are able to drive the agenda with their headlines of catastrophe. And it suits the FSA to ride this fairground extravaganza.
    If you are right that RDR 2 will occur somewhere in the next 5 to 15 years it surely requires some people to put together a body of evidence that can influence the next joy ride.
    If you do not do that all this comment is pure hogwash.
    If you do not do this then your stated commitment to consumers is also hogwash.
    If this is the case, stop whinging, and use RDR to make a lot of money, and ignore the fact that the consumer comes out of this worst.

  26. It is not those who have advisers that will be affected, I’m sure we will all continue our work for existing clients, more likely it is those that dont have an adviser relationship who will find it increasingly difficult to access theadvise they need.

  27. If I headed up a project and thought it would prove to be a huge success, would I walk away ? I think not, so why do we have so many leaving their posts prior to the introduction of RDR?

    WE all know the answer and so do they!

  28. I agree with all the above and more. IFA’s are supposed to be building a fee structure around RDR which must incorporate anticipated expenditure, for the purpose of theFSA to understand this is called a Business Plan or so my Bank Manager tells me. However as i have no way of knowing what my FCA fees or my FSCS Levy is going to be how can I do this accurately without having to go back to clients on a year on year business advising them my fees are rising. I’ll say again the EU, FSA and the Government want us out!!!!! They want the Banks to provide all the advice because they are easier to regulate and all the cream on the top of the cake can be divided up nicely. We IFA’s should have reacted long ago but wr were too scared which is exactly what Hector Sants wanted!!!!

  29. It’s Easter and we receive a divine revelation. RDR will not benefit customers. Finally !!!!!!

  30. Unfortunately for those of us who do aspire to better things and more stability in this industry the RDR will in fact do the exact opposite of its original intentions as it has been specifically designed and refined to get rid of the majority of transaction based IFAs, which have to all intents and purposes been the engine of growth in the provision of financial services over the last three decades.

    If you don’t sell products, you don’t get paid, if you give advice on the purchase of a product for a fee, the only realistic method of payment is to have it deducted from the investment.

    Can you imagine anyone actually thinking that when a client wishes to incept a personal pension, he/she agrees to have say 50% of the first years premium paid to their adviser for their services.

    Much cheaper to buy it direct from a bank isn’t it ? (Lol)

    It will inhibit growth as the availability of cost effective advice services is being compromised in favour of so called fee charging, which if one examines the rules, means that instead of say a 3% commission being paid by a provider and added to the charging structure to spread the cost of advice, a similar 3% fee, deducted from the clients investments achieves the same income for the adviser, but directly effects the initial investment detrimentally. I have read and heard arguements that in the long run it will be cheaper, but quite simply they fall on deaf ears when speaking with consumers / Clients / customers, whichever title you want to give them.

    It would not have been beyond the realms of common sense to amend the commission style of payment to a level payment system, much as in general insurance, so that clients can have a choice!

    Unfortunately THEY are the real losers and of course the sad fact is that those of us in our sixth decade (63) will have little to sell after the next two years, having built up a business over three decades, when the next draconian step in this process, banning trail and renewal commissions already in force, comes about.

    AND it will come about!

    Chew on this, why would any regulator want to get rid of the major proportion of transactional IFAs if it was not to place the major distribution channel for financial products into the hands of the banks and direct providers ?

    The FCA will continue this obligatory downgrading of our industry with as much vehemance and condemnation of “commission hungry advisers” as before, only it will be deemed “overcharging fee based advisers.”

    AND the demise of our wonderful industry will continue until the government realises that selling something (products) is not wrong, we sell cars, food, fuel, etc etc, why is selling financial products as a profession deemed un professional.

    Sales people whether you call them advisers or sales people, need to be paid a reward for their services and an incentive to sell more not less.

    Beats me!

  31. Lots of good post and comments above. Glen’s is worth reading twice and thinking on.
    What is interesting is that we are now at the stage where those of us who said 5 or 6 years ago that RDR was flawed, but we’ll still be here ARE still here and pretty much ready for what is needed post RDR.
    I got my 143 points needed under the CII for my level 4 for instance by doing a few R0 papers which filled all my gap fill too. The slight flaw was despite all gaps being filled, the home reversion plan qualification (I HAVE NEVER ARRANGED A HOME REVERSION PLAN) shown at 5 points is not counted by the CII, so I have got to get another 3 points! As all the GAPS are filled by the R0s, then this is complete BILLSHIT…. But then, that is what the whole RDR has been.
    As someone else mentioned in these posts, without a workable solution for Simplified Advice, then RDR is a failure before it even starts.
    It is worth going back to listn on the Parliament website to Hector Sants reporting to the TSC in February of 2011 when he and Sheila Nicholl said that Simplified Advice was an integreal an essential part of RDR and now Hecot and all are leaving a sinking ship, Peter Smith is saying this is what Simplified Advice rules will be and if no one wants to use this method as it is not cost effective, that’s not our fault!
    The FSA DROVE the RDR after saying it needed to be industry driven. Yet now we are nearly at the deadline there are few who think what is going to happen is actually achieving it’s stated aims and that includes many of us who will still be here in 5 or 15 years time (I think 5) when RDR2 takes place!

  32. And the meek certainly won’t inherit the earth.

  33. i agree with most of what has been said here bu still struggle with one simple thing. The reason that the FSA have won on all of these issues is that they are one entity, we as the industry are thousands but not with one voice or spokesman or woman and hence they, the FSA are pushing on an open door

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