Back from speaking at a financial planning conference in Canada, someone asked me what the country was like. I told them it was like a polite version of America.
Just as we once worried about the introduction of the RDR, they are now experiencing the same pain as they face hard disclosure for the first time. For now, it only applies to investments but its progression to insurance products is seen as inevitable and the sudden shift for many towards protection will no doubt hasten its change.
I would argue the real discussion regarding fees has yet to take place in the UK, with many still seeing the RDR as a mere label as opposed to driving a cultural change.
The 1 per cent level in investment charges is promoted as good value, yet I am not convinced. I will be surprised if that level of charges is maintained long-term, especially on an active portfolio carrying an ongoing charge figure north of 1.5 per cent in the current market, taking inflation into account. Just how many profiles are including a risk premium of 5 per cent-plus?
The focus on margins will continue, with savings necessary, but we need a better handle on costs. Far too many players have no idea of the costs attached to the layers within their propositions. This is a problem that requires attention and tracking time for all staff is one of the only ways to do so properly.
As we all attempt our own versions of due diligence, I remain concerned there is no one accepted format that we can rely on. So many just collect information but without associated action, the models are worse than useless.
Suitability remains a keystone of effective regulation. To prove it we need to have done our research, as do the fund providers, which need to identify the target investors for any new products and then ensure they reach those markets.
The ongoing refinement of disclosure means accurate management information is vital if we are to avoid additional risk as a lack of information prevents the adviser and his/her firm from being able to detect concentration risk effectively.
The regulator will continue to request statistics and we need to be ready. After all, we too can benefit from them. The sooner we can see where our money goes and the true risks we run in our firms, the better. So if the FCA tells us to collect some more data, instead of running off to have a moan on a social media platform, let’s think how it might be to our own advantage. If a tweak here and there would help improve the data format used by the providers, then what are we moaning about?
Canada maybe behind us in disclosure terms but from where I stand I don’t think we are too far in front. It’s the sharing of information that takes us forward as we face the challenges of reducing revenue and higher costs, regardless which side of the pond we are on.
Robert Reid is managing director at Syndaxi Chartered Financial Planners