With his speech already released, FSA chief Hector Sants will offer an RDR olive branch at tonight’s Aifa dinner when he meets the great and good of the IFA world.
Sants will say the FSA has been unclear about its intentions and yet unless he is saving some big announcement for this evening, we have yet to see an outline of “RDR possible” as opposed to the “RDR impossible” which was offered to the market at the start of the summer.
The FSA press operation has displayed a spectacular lack of a sense of occasion in issuing the speech today. But the important thing is that the change in tone is very good news. If this really is the FSA in listening mode, the advice sector should seize the opportunity. Tonight adviser leaders should talk Sants’ ears off if they get the chance, particularly on the practicalities of change.
The speech also suggests that Sants may be prepared to take ownership of the review. If he does, it considerably strengthens officials such as Amanda Bowe, in their discussions with IFAs. She has been making the case for the controversial proposals around the country and indeed at overseas conferences in the last few months.
But this could be good and bad news. If Sants backs the old RDR proposals and suggests that they have simply been misunderstood then we suggest advisers have to stay in campaigning mode. If rank and file advisers still have to change model, quadruple their exams and quadruple or more their level of capital adequacy and pay even more for a run off bond, in a short period of time, then for many advisers it is still “RDR impossible”. If compromise is offered not necessarily on the direction of the review much of which is hard to argue with anyway, but in the path taken to get there, the level of qualifications needed and the speed of implementation then it will represent a genuine change of tack and “RDR possible”.
It doesn’t necessarily mean advisers cannot criticise the foundation of the review. This is a free country. Much of the debate around the broken model was very unfair. It dumped the blame for all manner of market malfunctions on advisers where in some cases it was simply a case of advisers looking out for their clients as well as themselves. Best advice was never something that was concerned about the general good of a country or indeed a life office’s back book.
Sants also says there will be a 25 per cent increase in small firm supervisors and similar increases in enforcement resources.
But there is also an insistence from Sants that small firms are still part of the FSA’s plans and thinking on the retail market. On balance this is good news too. Money Marketing has argued that RDR felt like a regulatory surge before a withdrawal to some sort of principles-based ivory tower. We cannot now argue that increased resources and increased FSA contact is necessarily a bad thing. The odds on a visit are surely increased, and it is unlikely that any adviser whether good apple or bad, old model or the smuggest new model evangelist relishes that.
But if done fairly, increased contact with the regulator is no bad thing.
Yet we have some misgivings about this too. Take guidance offered this week on personal accounts. It was so light touch as to be no touch. There is probably not one adviser in the country who has any more idea about what the FSA wants in terms of advising on personal accounts than they did before the statement was issued. It is reminiscent of the old but still relevant adviser requests for a definition of misselling which was never really forthcoming.
One final point about the review and something in the speech tonight. Sants says that he wishes advisers to be clear when they are selling and when they are advising. This has a simple appeal but we also think there is a danger of this being an oversimplification. In many cases, even in the case of fee based advice, there is some selling. We wonder if convincing someone to not follow this year’s investment fad and invest in under rather than overpriced assets, or to convince someone to take the appropriate insurance rather than the cheapest isn’t a combination of advice and selling. We also worry about True Potential’s David Harrison’s warning that it would be difficult to reach new prospects without commission – rather than a customer agreed fee – which might be possible for existing clients. It smacks of the original RDR’s simplistic attempt to repolarise advisers without considering the fact that the market is every shade of grey.
Even the bad apples argument is more complex. A big regulatory push that catches bad advice could well see bad apples leave and would be welcomed by most advisers. But simply putting up the price of being an adviser may mean there are less apples, whether rotten or not.
But still – it sounds like Sants will arrive at the Draper’s Hall tonight with some regulatory carrots while reminding advisers that he still has a big stick back in his office at Canary Wharf.
There will be a lot of very wily negotiators at tonight’s meeting who will probably be better than me at recognising whether this is a genuine offer from the top of the FSA or simply a rebranding of the RDR.
Yet I can’t but help think back to the Bankhall advisers I met a few weeks after the original paper was issued. They said they believed they could change model. Indeed they were 90 per cent of the way down to road to becoming the sort of adviser they thought the FSA wanted. But the burden imposed by the qualifications requirements meant they would have to sell and sell cheaply – probably to some chartered adviser – with the value of their retirement fund reducing accordingly. They simply couldn’t run a business, move model and go back to school too.
If what Sants offers allows those advisers to think again and not be forced into some sort of firesale, then the review becomes something that many advisers do not like but probably not something that they have to fear. I certainly hope so, but as a newspaper MM is not going to let our guard drop completely and we suggest advisers don’t either.