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Milestones or cliff edges- would regulatory RDR incentives work?

Aifa director general Chris Cummings has certainly attracted plenty of adviser support with his call for the FSA to drop its RDR plans to force existing advisers to reach QCF Level 4.

Instead, Cummings says advisers should be encouraged to reach QCF Level 4 and beyond with regulatory incentives  such as lower FSA fees, lower capital adequacy and less intrusive supervision.

Aifa says if the FSA will not back down on mandatory retrospective qualifications it will seek a judicial review of the RDR process. The trade body believes the current proposals could represent a restraint of trade.

Cummings believes that given strong commercial incentives firms will be eager to gain extra qualifications. He warns the current “arbitrary cliff edge” of 2012 could lead to many good firms being forced to leave the industry.  His argument is very persuasive.

He says a consensus have developed amongst the vast majority of advisers about the need to increase professionalism, but that the move towards higher standards is being undermined by the FSA’s strict deadlines.

Cummings says the IFA sector has already gone further than other parts of the industry in embracing professionalism- pointing to the 35 per cent of advisers who are already at QCF Level 4 equivalent or higher.

His view on the move towards professionalism seems to be backed up by research from Personal Finance Society’s latest RDR submission which suggests two-thirds of certificate level advisers are already on route to diploma level while 40 per cent of those at diploma level are considering advanced diploma.

This Aifa proposal demands a fair hearing from the FSA. The first question likely to be asked by the regulator is will regulatory incentives really increase levels of  professionalism significantly?

So will they? If you are on the road to QCF Level 4 would these proposals keep you on that path?

How significant would these regulatory incentives have to be to encourage advisers to increase their qualifications?

Skandia is the first provider to come out in support of Aifa’s position. Will others follow?

Let me know your thoughts.


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There are 14 comments at the moment, we would love to hear your opinion too.

  1. Without regulatory intervention, there will remain a hard core of advisers who fail to reach professional qualification standards.

    AIFA talks about a ‘cliff edge’ but this metaphorical journey towards higher qualification requirements started many years ago in a very slow vehicle with regular warnings and opportunities to change direction or disembark. It is only now that the cliff edge is coming into view that change resistant advisers appear to be taking notice.

    Talk of a high number of advisers being ‘forced out’ in 2012 is one thing, but where is the comparison to those who would be leaving anyway due to retirement or simple commercial failure?

    Cummings points to the one-third of advisers already at QCF Level 4. Can we really (collectively) be proud of this ‘achievement’ so many years after mandatory GCSE level exams were introduced?

    It also seems a little naive to believe that the FSA has not already sought legal opinion on the legality of the proposed RDR changes.

    There is a lot of passion from the anti-RDR lobby right now and plenty of recycled arguments with little real substance. Is this the final death rattle of a group destined for failure or the start of positive (consumer centric) change? It’s hard to tell.

  2. The Mystery Shopper for IFAs 4th November 2009 at 4:34 pm

    No the FSA has not sought legal opinion, just look at the history of how they handle things. They think they are immune from prosecution that’s the problem. IFAs are nothing but distributors of products and not investment experts. Lets not lose sight of that. Nothing has really changed in the last 30 years from that point except IFAs have been forced to appear to be more expert than they are with more responsibility. IFAs are not manufacturer of products, if the product is faulty go back to the maker.

    People are also not saving anymore as they used to and thanks for a failed regulatory system that scares the public. The FSA just needs to go away and get proper jobs like sweeping the streets as a start.

  3. I doubt if these comments would be made at all if the FSA was not under political threat.

    What sort of message will the industry be sending to the public if it goes for judicial review to seek to stop standards being raised for the public benefit!

  4. Neil F Liversidge 4th November 2009 at 4:48 pm

    Isn’t it funny how the pro-RDR lobby almost always posts anonymously? Maybe they don’t want anyone looking too hard at their proposition? A couple of my ex-bosses were only FPC qualified but were incredibly clever and astute advisers who bust a git for their clients. On the flip side I know a failed adviser who has qualifications coming out of his ears but has gone back to working for a bank in a compliance role because he a) couldn’t get much business on the books and b) what he did get on the books didn’t stay there long. If the FSA has an opinion saying its changes are legal then all it has to do is publish it and settle this argument, so who is being naive? We’re waiting….

  5. Finally some common sense arguments from AIFA for existing IFA’s who are finding hard enough to survive in the current climate.

    Hopefully the exam providers will see the light and stand with the advisers and insurers on this issue. I fear however the short term loss of revenue will be too much for them.

  6. My issue with all of this is that to my knowledge there is no other profession that requires an existing long established practitioner to gain a qualification that is degree standard. Doctors, accountants, lawyers etc all generally go to Uni as a full time student to qualify, whereas we are expected to carry on our full time job and gain qualifications in our “spare” time. Don’t get me wrong, I have no problem with proving continued competence, but even such steps as these will not cure this industry of its ills. Sadly we are looking at the demise of IFAs. If new entrants have to be degree qualified why join an industry such as ours? Easier to be a doctor or lawyer with considerably more income!

  7. Anonymous (why cannot people leave their names Are they ashamed of their opinions?) is missing the point that the FSA are demanding an arbitrary date by which one must have an exam result which allows you to carry on doing what you do already. Bear in mind that passing the exams does not mean you can actually do the job,but many people currently do the job without the exams. For those that wish to progress to QCA level 4 should do so but those who feel it will not add anything to their business model should be allowed to carry on trading and if the market demands higher qualifications and I suspect it will, then allow people to progress at a time of their choosing.
    A more important problem is the move to fee only advice and the huge potential for consumer detriment that is inherent in the proposal. Consumers have had a choice to pay for advice by fee for a number of years and yet over 90% refuse to pay by fee (an FSA figure ) and there has been no stampede by the public to demand the banning of commission which suggests that now may not be the time to do so. AIFA is absolutely right to pursue their course. Oh by the way, to assume the FSA has sought legal advice may be considered a trifle naive. After all, the FSA have carried out no work, that I know of, on the average level of fee income for advisers prior to telling us that we must charge fees!

  8. Sitting and passing exams is only part of the IFA role it does not mean the public will get any better advice. Practical experience, low or no complaint record and good persistency levels should also be taken into account as this is a far better measure than any exam.

  9. Evolution, not revolution.

    Evolution has been working its ‘miracles’ steadily for years, you only have to read hysterical, sorry, historical comments from former high pressure targeted sales outfits like Towry law to see that change happens, if you believe it in that ‘rescued’ company’s case.

    Has the lot of consumers improved since the days of the man from the Pru? I agree that nobody is knocking on doors at all hours with the advice “you need a penshun, sign ‘ere” but perhaps that is where the savings gap began, the more you regulate the worse it gets..

    Less is more.

  10. As a member of the public and a client of an IFA:

    A couple of multiple choice exams is not enough to increase consumer confidence. Sorry, but you have to be more aware of what is going on than that. And no, just because you say you know enough is not going to convince me. Prove it.

    And as for Mystery Shopper “we are distributors not investment experts”, as an example just two words for you ‘structured’ and ‘products’. Oh, how a little knowledge can go a long way.

    The amount of IFA’s afraid to take a few basic exams tells its own story I’m afraid.

  11. Hugh Dill: Your assumptions are flawed in that few IFAs arranged ‘structured products’ and many are qualified well above the proposed level yet they are still expected to go through more hoops.

    If you are indeed a client then would you accept a challenge to have another IFA conduct a thorough fact-find, prepare a report and compare it with what your current IFA has produced? For the sake of balance I would suggest you allow two levels of qualified adviser to do the work, the ‘generalist’ with ‘a couple of tick box exams’ and a firm with all the previos mandatory ‘specialist’ exams under his/her belt.

    Yes, there are more variations on the concept of an IFA than you can shake John Tiner’s big stick at yet some people want to squeeze them into the same box.

  12. Hugh Dill asks us to consider two words – Structured and Products. Perhaps he might like to look at the statistics for the sale of these products – the vast majority being by BANKS not IFAs. As an individual with 40 years+ in this business I have NEVER sold a structured product. When Scottish Mutual produced their Guaranteed 95% plan, many years ago, (one of teh first derivative based plans tocome to the mass market) I declared that the danger was that when the market for derivatives – bets on the market – became bigger than the actual market it was betting on then the scope for disaster was tremendous.

    Since then I have watched numerous clients fall into the grasp of the Banks. Clients to whom I could quite easily have sold the same products and earned a commission. I always refused to do so.

    My reasons for refusing to sell these products were based upon simple common sense – I do not need a degree or a certificate to reach such conclusions. Many people massively more “qualified” than I got it so very wrong in their greed.

    And there is the rub – Qualifications as such do nothing to mitigate the greed of the individual. When Life Offices greed reached its crescendo on Endowments I stopped selling them. It was blindingly obvious that the projected returns were unsustainable.

    There are innumerable other products I could mention. Split Caps, Precipice Bonds, and so on – all of which were foisted onto unsuspecting investors and none of which have been sold by me.

    I confess that I get quite offended by comments such as those of Mr Dill. Perhaps however his ignorance of teh true situation demands he be forgiven for his misunderstanding.

  13. Exactly Evan. The problem with the need for ALL “advisers” to achieve a certain level, is that ALL advisers WONT be doing the same job. Some might actually be creating holistic advice solutions, but some might just be “presenting” them, some might be advising only on occupational pension transfers, some might only deal with all the protection business within a firm, some might just be “finding clients, some might just be doing fact finds, some might just be account managing, some might never see clients at all and just do investment research…..etc etc..there are so many different business models in our industry (which the regulator doesnt seem to realise) and the aim should be to make sure that ALL advisers ARE qualified for what they DO, not what they DONT do.

  14. Evan – If well qualified IFA’s recomended these products without the necessary checks and warnings that is a job for the regulator. If they did so beacuse of a lack of knowledge that is a job for the IFA to better their knowledge. If you are telling me that not one structured product was sold by an IFA ignorant of how they worked, I do believe you would lose credibility.

    Grosvenor – My we are touchy, no misunderstanding here, I fully understand. Who mentioned banks? Not me, don’t use them, never would. I think we all know that banks can get away with whatever they like. They sell so because they have targets to hit, they don’t need the knowledge. Greed and knowledge are not the same things (albeit, occasionally interlinked). Same question applies to you as Evan, do you believe that none of these products were sold by IFA’s ignorant of how they worked?

    So Paul, So many different business models eh? Different legislation, different requirements eh? That will not make it so much less confusing for the customer. Remember them?

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