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Show us the evidence to justify the RDR

The two most burning questions about the RDR, it seems to me, are just what aspects of the industry is the FSA aiming to fix and in what way will the requirement of higher examination standards address these issues?

For example, is there any meaningful body of evidence to suggest any direct link between inappropriate recomm-endations and poor technical knowledge?

I suggest that the most common cause of poor standards of advice is the drive to sell and to meet sales targets imposed by someone else. That is where the banks’ distribution model leads the field – and by a wide margin. The FSA knows this but refuses to admit it, much less do anything about it, and exam passes are not going to fix it. All we will have at the end of the RDR, as presently proposed, is fewer sales- people still driven by the same pressures to meet sales quotas.

Yes, more highly qualified advisers probably do provide higher standards of advice to clients whose affairs are sufficiently complex to require high- level advice and who are prepared to pay fees for it.

But, set against this, does the FSA have any evidence that advisers with only basic or middle-range qualifications (but decades of experience) routinely formulate inadequate or defective financial planning strategies?

Just what are the indus-try’s glaring defects at which the RDR is targeted? The FSA talks vaguely about raising standards but offers no evidence that the standards of advice provided by most IFAs to most ordinary clients are in any way defective.

Is there any evidence of widespread (as opposed to niche) demand for specifically non-product- related financial planning advice? And where, as always, is the consumer research and the cost-benefit analyses which the FSA claims to undertake as the basis for all its regulatory initiatives? Missing in action, as usual.

Where is the evidence that the industry is likely to be better placed to serve Middle England if there are thousands fewer advisers available to formulate strategies building on what people already have and thousands more “new model” advisers working predominantly on the basis of fees which most ordinary people either cannot or will not pay?

I just don’t see such a landscape as being a better place for ordinary people to access affordable advice.

We know that the FSA reads the trade papers, so perhaps someone from the FSA would be good enough to set out just what better “outcomes” it expects to achieve with the RDR.

Depolarisation has failed and Hector Sants has admitted publicly that his predecessor’s TCF initiative has been a failure, so I think the industry is entitled to know in what ways the FSA expects the outcome of the RDR to be any better. To many, the RDR just looks like more regulation to justify the jobs and salaries of the people at Canary Wharf.

This is an open request to the FSA to publish for all to see, to debate and perhaps to challenge:

1: The evidence of industry failings on which the RDR is predicated.
2: The consumer research on which the RDR is predicated.
3: The cost-benefit analysis to justify the upheaval that the RDR is likely to cause.
4: The “better outcomes” that the FSA expects to see once the RDR has been fully implemented across the industry.

Julian Stevens
Harvest IFM


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There are 6 comments at the moment, we would love to hear your opinion too.

  1. There is no evidence and RDR is without foundation as the ABI Charles River Associate Research Proves. are a leading global consulting firm that

    The ABI (shown from their later submission to the FSA) were looking for methods to show how bancassurance could supersede IFA business. This has been part of the ABI and FSA agenda and thereafter developed in the FSA Retail Distribution Review.

    Unfortunately for the ABI the research failed to uncover product or provider bias and as a result the ABI buried the research.

    Under a FOI request Alan Lakey obtained a copy of the research from the FSA and it makes illuminating reading. If want a copy or want to know more about the Adviser Alliance then please log on to:

  2. Julian – congratulations on your coherent and comprehensive analysis which really does bring home how the RDR could end up killing most of the patients (i.e. consumers) the FSA claims it is seeking to protect.

    However, there is hope. Despite all the shrill bluster beforehand there is strong evidence in their latest RDR paper published yesterday that the FSA is at last starting to LISTEN – for example they’ve now officially backed off of their crazy notion of reading the RDR across to the protection market and also retreated from their “Take the exams or you’re out stance”.

    Still much to be done but the tide is beginning to turn – and fast.

  3. Back in the summer, I put in a Freedom of Information request to FSA asking whether there was any evidence from FSA’s supervision work (either generally, or specifically in respect of pensions switching) demonstrating a link between quality of advice and (a) fees relative to commissions; (b) higher versus lower qualified advisers; and (c) independent v multi-tied v tied advisers…

    Being a director at the time of a firm of Chartered Financial Planners whose advice (when we gave it) was fee-based, I had an interest in seeing evidence largely supporting what FSA were saying…

    The request drew a blank.

    There is no such evidence.

    The RDR is based on lobbying, not evidence.

  4. Alan Lakey - Adviser Alliance 21st December 2009 at 9:50 pm

    The rationale behind the RDR is hopelessly flawed as borne out by the two separate pieces of research by Charles Rivers Associates.

    However, even if the perception of bias was true, there are cheaper, less disruptive and fairer methods of bringing about change which is good for the consumer and not damaging to the IFA.

    1. A commission cap where all lump sum investments pay a maximum 3% will eradicate any suggestions of product or provider bias.

    2. All other professions allow existing members to continue in business when exam requirements are increased for new admittants. Other professions rely on CPD.

    3. The major cause of previous and current consumer detriment is the behaviour of the banking sector. Banks have customers whereas IFAs have clients.

    4. Complaints figures from the FSA and FOS prove, without any doubt, that IFAs have the lowest numbers of complaints whilst the banks have the highest. This is the case even when PPI and bank charges are stripped out.

    The way forward is clear and, as an industry, we need to assist the FSA to clear its currently clouded vision so that the industry that has assisted so mnay millions of consumers is allowed to thrive rather than wither on the vine.

  5. Christopher Petrie 6th January 2010 at 12:31 pm

    Hey guys, let me explain what I have done about RDR. I was 50 credits short of level four, so I took J05 in October. Pleased to say I passed. It took about 22 hours of revision, as I am an “experienced adviser” (like so many others claim to be).
    I plan to take J06 later this year to obtain level 4, plus any CPD that may be needed under the “no regrets” policy.
    Of course, instead of just getting on and doing the exams and proving my competence to my clients and the regulator, I could instead write whinging letters to the trade press, or the FSA (or both) on a weekly basis for 3 more years until I am closed down for not proving my ability and knowledge.
    I know what I think is best for me and my clients. I’ll leave the rest to make their own minds up.

  6. Hi Chris. Congrats on the exam passes.

    But how do you answer people like me – Chartered/FPFS and planning to keep sitting more exams – who think this RDR thingy is nevertheless a load of rot?

    As a practical response to the RDR, you are probably at least 99% correct. But that surely does not answer the point that there is no evidence supporting RDR and/or that it’s objectives could be met through a more modest and proportionate set of changes?

    Good luck with J06.

    Cheers – John.

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