View more on these topics

Testing times ahead

This week, Money Marketing’s expert panel respond to the first questions submitted by readers about the RDR. The panel are on hand to answer questions about the potential future market landscape and broader issues underpinning the review. If you have any queries you want answered, or any nagging questions you do not feel have yet been addressed in these pages, email the panel at

Q I run a small mortgage and general insurance practice. We have two advisers and support staff. The business is directly authorised and we are FPC/Cempap qualified. I recently sat and passed the Chartered Insurance Institute’s new equity release exam.

I offer whole of market advice with an extensive panel of lenders via several mortgage clubs and Bankhall’s protection suite consisting of around 14 providers. I have previously been qualified to sell investments, pensions and so on as an appointed rep with Legal & General but have not been active in this area since 2001.

Our income is in line with most others in this sector comprising proc fees, indemnity commission – around 50 per cent of turnover – and professional fees. How do you see the RDR affecting business such as mine?

Gill Cardy: If you were to work as a general adviser wit a whole-of-market range, top-up qualifications would be required to fit the proposals as they stand, suggesting diploma level qualifications would be necessary, especially if you were involved in more complex work, which is bound to include equity release.

Robert Reid: If the general adviser section survives, it would seem to be the place for you. This means taking more exams to get to diploma level. Your comments about investment indicate that even if you were at diploma level, you would need to refresh your knowledge to be considered competent. Until we see the consultation paper next year, the market segments remain proposed and not fixed but the Treasury holds the view that FPC is no longer enough for the professional adviser.

Richard Hobbs: The FSA contends that the mortgage market is so different from that for retail investments that it must remain outside the scope of the RDR. So, superficially, you have no worries. But I wonder how long it will be before the FSA discovers that mortgages are closely substitutable products in the minds of consumers and, more particularly, advisers? You say that you have switched from investment products to mortgages. In time, the RDR will extend to protection and mortgages but that is some years off.

Phil Billingham: On the surface, the RDR does not apply to your business, so no immediate change is needed. Saying that, there is a history of regulation reading across between sectors, so you are wise to raise the issue. Where there are opportunities in your business to increase qualification levels, work on clear client segments and build up underlying income based on a service proposition. Then I would take them, assuming the cost is low.

Q What actual quantifiable evidence is there that “the model is broken” and commission leads to churning and consumer detriment?

Richard Hobbs: It is right to question the assertion that the business model is broken. The original argument is thin on specifics. I suspect some businesses work much better than others and sweeping generalisations are dangerous. I believe the market works very poorly for the reasons Ned Cazalet puts forward – that it pays £6bn commission for £1bn net new business. But it would be instructive to know why some businesses are better than others.

Gill Cardy: I think the FSA is stung by the assertion that its basic premise for the review is flawed and it is keen to conduct research to provide the more detailed evidence that people are asking for.

What is clear is that I cannot be the only adviser who has seen poor sales practices, excessive commission levels and inappropriate advice when simpler, cheaper and lower commission options would have been satisfactory.

Mystery shopping indicates not all is perfect and a nation deeply distrustful of the financial services sector is supposed to place an ever increasing amount of trust in companies and advisers for their future financial security.

The FSA and Treasury think things need to change to make the situation different and better for the consumer.

Mark Twigg: The RDR has been described as a solution in need of a problem. I would be worried if people genuinely thought there was nothing wrong with the way the current distribution model works. The fact that the industry needs to change should be taken as a given. As both the pension and protection gaps continue to grow, it is clear that providers are fighting for market share in a shrinking marketplace and millions of consumers are missing out as a result.

The problem of consumer access to products and advice needs to be addressed if this country is to get to grips with massive levels of financial exclusion. The Treasury select committee published a report this month calling for a more ambitious target for increasing savings among lower income households and for savings’ needs to be given a higher priority in the Government’s actions to tackle financial inclusion. It is simply not good enough if millions drift into retirement to experience the rest of their lives in poverty or have to spend years coping on benefits because they did not have any protection in place when they lost their job or their partner died.

The need for long-term savings vehicles is as pressing for people on moderate and low incomes as it is for those on higher incomes but these needs are just not being serviced. And why? Because the market cannot reach these people cost-effectively? If that is not a market failure on a massive scale, I do not know what is.

But we have to recognise this is a collective failure. Let us be clear that not all the blame can be laid at the industry’s door. The role of the FSA, which is responsible for determining sales regulation, and the Government, which determines the tax and benefits system, have a massive role in determining whether it is practical or desirable to sell products to the financially excluded. The Government cannot be divorced from attempts to widen access to financial products, yet I have seen little sign to date that the RDR is addressing this rather fundamental issue.

Robert Reid: Ned Cazalet’s report demonstrated that there was no new business, it was simply recirculating. Charging 1 per cent but paying out 5 to 6 per cent on inception cannot have a long-term view. I regret that far too often we have taken on clients where the sole reason for the sale of products was to benefit the adviser. These are not isolated cases and the miscreants are often private banks and major IFAs.

David Elms: If we look at the current levels of demand and, more important, satisfaction among those consumers that use an IFA, I would suggest the system is healthy and competitive. Over 600,000 consumers are demanding the services of an IFA every year through’s online and offline find-an-IFA search. Our research based on around 2,000 users of our find-an-IFA service indicates that nine out of 10 of these users are satisfied with the services they received from the IFA that put them in touch with.

Phil Billingham: The figures used were selective and applied to a narrow sector of the IFA community. Basically, the message is that small and medium IFA firms certainly need to smarten up their act and become more efficient but the model is at worst creaking. The FSA actions seem designed to move us towards the real broken model – the big IFA.

We should remember that providers – the FSA’s new best friends – often trade at a loss and are responsible for most consumer detriment. Where are the measures designed to correct their errors?


Lancaster joins Gulf

Norwich Union UK income opportunities manager Ian Lancaster has quit to join Bahrain-based Gulf Finance House Asset Management.Lancaster, who brought the fund to Norwich Union with him from Moneyguru in May 2006, will join forces with former Skandia chief investment officer Alan Durrant and take on the role of international equities director.He will help oversee […]

Vertex named biggest mid market private company

Vertex has been named as the biggest mid-market private company in Britain, according the to the Sunday Times HSBC Top Track 250 league table. The annual table ranks Britain’s 250 biggest mid-market private companies by turnover. Vertex tops this year’s poll with revenues of £415.9m in 2006, having been bought in March by a group […]

European Parliament to look at helping those who buy properties abroad

The European Parliament will be looking closely in the near future at providing more help for people buying properties abroad.MEP and European Parliament vice-president Diana Wallis yesterday told mortgage journalists at the unveiling of BM Solutions first European buy-to-let study that the current parliament is keen on making sure that databases across Europe, particularly in […]

What exactly is product innovation?

By Fiona Tait, Pensions Specialist Ros Altmann reportedly hoped for more product innovation following pension freedom¹ and, according to one poll, 66 per cent of advisers also believe that providers should be doing more². This article considers whether there is a real client need for new products, or whether we should be focusing our attention on efficient delivery […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm