Statistics in isolation can be very misleading but when linked together are most revealing, as follows:
1: 2 per cent of complaints come from clients of IFAs (61 per cent from clients of banks) 2: About 45 per cent of IFAs either make a loss or a profit of less than 5 per cent of turnover 3: To gain diploma level will take about 400 hours study. For chartered, it is about 1,000 hours 4: The average person has about £28,000 in their pension at retirement 5: The average person has about £2,000 in savings 6: Only a third of people are prepared to pay fees and, of those, only 5 per cent will pay over £50 an hour.
A few observations: a: That it is very clear where regulation is most needed. b: That the “commissionhungry salesman” tag does not fit the facts for IFAs c: That clients use IFAs that they trust because of their knowledge which takes hours of study and experience to attain d: That, typically, an IFA’s client bank will be anything but “average”. e: That the average person has neither the means nor desire to pay explicit fees.
Regulation is generally aimed at the mean and the further one’s business model is from the mean the more unsuitable those regulations become. It is very clear that most IFAs will by definition have serious commercial problems operating under the current remit of the RDR and it needs some urgent revision, as follows: 1: IFAs need to be separately regulated by a body who understands their role 2: Older IFAs should be given until 2020 to achieve diploma status 3: All new contracts should be on a factory-gate basis with customer-agreed remuneration allowed to be added or taken away. If the client choses to pay via the product and the product does not have this facility, it must be deemed as a product failure to satisfy client needs, not adviser bias. 4: Providers must be resp-onsible for the products that they bring to the market so that the consumer can be sure that the product does what it says on the tin, specifically: a: If it contains guarantees and the guarantees fail, it is the provider who is at fault b: If a product is marketed as low risk and fails per splitcapital investment trusts, it is the product provider which is at fault 5: That the RDR must lead to full transparency of costs and liability, with the client not forced into fees.
The FSA has done a better job with the RDR than many give it credit for and, with a few modifications, could produce a platform for the professional, successful, consumer-friendly, transparent industry.
Chartered financial planner Emery (IFA) Associates