Last week, I attended the Aifa Bristol directors’ dinner. I don’t think anyone, except perhaps the chair Chris Cummings and guest speaker Jeremy Evans, who is an associate from the FSA’s RDR team, has actually read all 110 pages of the FSA’s RDR discussion paper.
Nevertheless, it formed the basis for the first question – what did Callum McCarthy mean when he suggested the present distribution model for financial services products in the UK is broken?
Although a great deal was said by Mr Evans, it became clear we were not going to get a straight answer.
The next question concerned the attitude of the FSA towards commission – does the FSA intend or want to outlaw it? The answer seemed to be a straightforward no.
This took us back to the first question, namely what is it about the present distribution model that McCarthy considers to be broken, if not the temptations of commission to push products that may not necessarily be the most suitable for the circumstances and requirements of a particular client or, at least, represent the best value product in a particular category?
On that, we still couldn’t elicit a clear response.
I asked whether or not any new rulings from the FSA on how levels and methods of remuneration are communicated and agreed between the adviser and the client will apply uniformly and with scrupulous even-handedness across the entire spectrum of advisers/salespeople.
The answer was probably not. There seems to be something indefinably different about the selling process when it comes to tied and multi-tied agents (which, of course, means the banks and the building societies) by comparison with IFAs.
Why is it OK in the eyes of the FSA for representatives of the banks and building societies to sell life insurance investment bonds paying 8 per cent commission with little or no discussion of alternative amounts or methods of remuneration, not to mention the comparative merits of a properly balanced and diversified portfolio of unit trusts paying only 3 per cent commission, when such practices on the part of an IFA would be considered highly questionable? Again, we were unable to elicit a clear response.
One might argue that the FSA producing a 110-page document questioning all aspects of the industry’s distribution model is tantamount to detailing all the ways in which 20-plus years of regulation has apparently failed to achieve its objectives, namely a more efficient and transparent business model that will serve the industry’s clients in a way that will inspire more trust and confidence.
Also, why is the FSA trying to tackle so many issues in one go with a document so massive that the vast majority of people likely to affected by it are unlikely to have time to read, let alone absorb and implement, its proposals?
I asked would it not be vastly better to prioritise the issues one at a time? Would this not be more logical and workable? Mr Evans said this might well be so but offered no explanation as to why something so obvious has apparently not occurred to anyone at the FSA.
And just what is the number one issue of the RDR? If, as most press coverage seems to suggest, it is that of disclosure and discussion of remuneration methods and remuneration amounts, allied to customer empowerment in the remuneration process, then surely is that not the best place to start?
Now let us reconsider my earlier question – will any new rulings from the FSA on how levels and methods of remuneration are communicated and agreed between the adviser and the client be applied uniformly and with scrupulous even-handedness across the entire spectrum of advisers/salespeople?
In the absence of a clear and unequivocal answer to this (which many will interpret as a no), how can the FSA possibly expect the perception of the RDR to be anything other than brazenly biased against IFAs and that little, if any, of it is intended to reform and improve the selling practices of the banks and building societies?