Almost two years ago, when the RDR still appeared to be a rather distant object in people’s rear-view mirrors, I recall a number of articles by Informed choice managing director Martin Bamford, as well as the IFP’s Nick Cann.
Both of them in their own respective ways were desperately trying to wake up a semi-hostile IFA readership to the fact that, while some way away, the RDR was closing in fast.
Back in October 2011, Martin wrote: “It takes time to create, test and refine a compelling [business] proposition. This is not something that can happen overnight. It is probably not something that can happen in the space of a few months.”
Even earlier than that, Nick Cann was expressing his own concern: “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.”
Almost eight months into the RDR and we are starting to see a picture emerging which supports everything that Nick and Martin were arguing back then.
In recent weeks, the FSA has cast an increasingly stroppy eye over the way some financial advisers appear to have made the transition to a post-RDR world.
It would seem many have simply substituted the commission-earning business model they previously used with another one, where the “fee” their clients pay is directly linked to a transaction they carry out – and the charge for that deal, oddly enough, mirrors the commission they earned before December 31 2012.
In hindsight, how did anyone ever think the FCA would simply accept this as a reasonable approach to a new fee-charging environment?
More to the point, what do clients think? Yes, I know that when a goodly proportion of advisers read this question, the immediate response will be that they don’t give a monkey’s – as long as they receive good service from their IFA.
But the reality is that, gradually, things are changing in the outside world – and the consumer media is starting to point this out.
Last week, The Daily Telegraph ran an interesting article on the costs of financial advice and why – according to its headline – more and more people are likely to shun advisers.
The article quoted GfK, a research firm, which found that over the past five years, 63 per cent of people who made an equity-based investment, including pensions, took financial advice. That represents about a million private investors, it said.
But GfK’s latest research, found that of those planning further investment within the next 12 months, one in three now says they would not pay for advice again. The proportion is higher among those with smaller sums invested, according to The Daily Telegraph, which suggests cost is the key reason for this rejection of advisers.
But another issue is clearly service. The paper spoke to one investor who has decided to switch all his investments to a low-cost operation. He told the paper: “My funds hadn’t really been looked at for many years. And I was aware I could save if I went to a broker where there was no commission.
“It took a bit of time to understand and I looked at a number of providers. Now I have everything in one place. And I know exactly how much I’m paying.”
As if this wasn’t enough, last week the FT published a column by its personal finance editor Jonathan Eley, who advised his readers to focus on investment costs at least as much as on performance: “Investors should control their costs precisely because they can’t control company profits, gilt yields, interest rates and a hundred other factors that affect returns,” he argued.
A couple of years ago, I pointed out that “IFAs need to buck their ideas up if they want to be ready for 2013.” But I also asked: “What if they don’t, or could hardly care less? What if a sizeable proportion genuinely believe they can just blag their clients?”
I suggested that advisers might be hoping they have a post-RDR window of opportunity of 12 months or so before the penny dropped with their clients that too many are paying for a service they don’t receive.
Two years later, these comments – as well as those of Martin Bamford and Nick Cann – are beginning to look prescient. Apart from one thing, sadly: the regulator is moving a lot more quickly than any of us could have anticipated to stamp out some of the industry’s less acceptable practices.
If I’m right, the clock really is ticking now. And if it is, rather than wasting his time questioning the minutiae of the FCA’s disclosure rules, as new Apfa director general Chris Hannant was doing in Money Marketing last week, he should be trying to give his members all the help he can as they belatedly try to live up to regulatory requirements that were pretty clear even two years ago.
There really isn’t much time left. Some urgency on the part of the industry’s supposed movers and shakers might yet save some advisers from a serious spanking by the FCA.
Nic Cicutti can be contacted at firstname.lastname@example.org