Last week, the FSA published its fifth RDR newsletter. It followed close on the heels of a speech given by head of investments Linda Woodall, where she announced the findings of the FSA survey on the RDR readiness of firms.
Linda’s speech generated quite a lot of scepticism over how well firms are progressing, particularly with attaining qualifications. According to the FSA, 71 per cent of advisers now hold an appropriate qualification, with a further 23 per cent on track to meet the deadline. These figures are a very close match to the information that we hold and as our figures are based on members’ actual records – not surveys or estimates – we think the FSA has got this right.
There was another statistic quoted by Linda, however, that I found more interesting. She said: “Our recent firm readiness survey showed that 59 per cent of firms are already relying totally or predominantly on an adviser charging model.”
She then goes on to say that this figure is lower among the bigger firms, at 32 per cent. Assuming this refers to a remuneration model, where the cost of the service is agreed and paid to the adviser in a manner compliant with the RDR, I doubt this statistic.
No provider, to my knowledge, has an adviser charging facility set up yet and it is unclear whether they can offer one before January 1, so are the respondents confirming that they are operating a fee-based proposition (possibly using commission offset) or are all their clients writing cheques? I think we know the answer.
The other way of being paid can, of course, be through cash accounts held on platforms or via unit cancellation but the rules on platforms are not finalised and the likelihood of cash accounts being fed by rebates is slim so is this a sustainable option?
Adviser charging brings a raft of issues. Will all providers offer the same options and on all products? Will the contract be set up gross or net of the adviser charge? How will encashment of units to pay the adviser charge be recorded where there are tax implications? What happens if a client cancels in the cooling-off period? The adviser will, after all, have provided the service for an agreed charge.
Conceptually, adviser-charging is a good thing but advisers need reassurance that the facilitation will be ready in time and workable for both them and their clients. It is fine for the FSA to say “it takes time to put together a proposal, communicate the change to clients and test it” but how, when the facility is not yet established?
The part of Linda’s speech that I do agree with though is that “implementing a suitable charging model has the potential to be the most challenging element of the RDR.”
Fay Goddard is the chief executive of the Personal Finance Society