I have been reading about him with a view to better understanding our present horribly similar times and came across wise words of his that apply well to the RDR. He said: “Don’t expect to build up the weak by pulling down the strong.” With banks’ viability weak right now but their advice quality more perpetually weak, propping them up with measures which dilute the quality brand that is indep-endent financial planning and advice is folly. What’s needed is an RDR that provides the conditions in which IFA’s qualitative strength can become more easily available.
My worry is that the new team running the RDR has a totally different background to those who were in charge when it headed briefly in the right direction. The latter were steeped in the Conduct of Business approach to regulation, whereas the new leaders are more attuned to the wholesale approach of Avoiding Systemic Risk. Both are valid approaches but in retail, the latter will prove a horrible compromise in the long term, inflicting a host of foul but legal sales practices on our still ill-educated consumers.
Taking a systemic approach to minimising the risk that consumers will buy products that do them harm means in practice accepting that provided selling methods do not cause moral outrage or break set rules, they may continue. One such practice forms the fulcrum of the RDR. Can selling from a range of products selected by your employers be construed as advising independently? From comments made at senior FSA level, it seems allowing salespeople to call themselves advisers, and even independent advisers if their employer is shrewd enough, might be on the cards. The RDR team seem to be looking to accept this point so as to ensure the bigger salesforces can better get to grips with the savings and other “gaps” we are all now familiar with.
In truth, the reason the banks and institutional sales teams need help closing the gaps is not because of the totemic significance of the words independent and advice, it is because their sales management and discipline is so prone to causing financial damage to their customers.
The fixation with volume sales and profit is an integral part of their culture. They are salespeople through and through and when they find a product that makes them money they shift it in vast amounts irrespective of suitability. PPI is the latest such product and it continues to sell well despite the Competition Commission’s efforts at reform. That is because despite being the worst way for most to buy this type of protection it makes banks good money and they need lots of that just now and the FSA is not inclined to control anything other than their worst excesses as they struggle with the self-inflicted credit crunch.
What should concern independent advisers is that the RDR is no longer heading towards creating a large scale viable profession which in time can grow to all corners of the market but is moving towards a compromise driven by the economic short-term needs as explained by bancassurer lobbyistsThe RDR will prove disastrous if it cements in the half-truths of depolarisation to achieve short-term treasury goals. It must strive to create a structure which causes all sellers to aspire to genuinely independent advice given as the agent of the client. If necessary, it needs to define clearly what that last phrase means in financial services regulation in order to put aside the difficulties with it in common law. The RDR needs to be true to its original reformist goals but I worry whether the new team is one that will understand that.
Tom Baigrie is managing director at Baigrie Davies Lifesearch