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The big issue

Unless you were on a different planet last week or took a holiday and missed all the fuss, the final FSA retail distribution review consultation paper was published.

Elsewhere in this issue, Money Marketing will provide you with a detailed breakdown of every dot, dash and comma in the RDR as it affects IFAs. There will also be plenty of comment from interested parties, all pushing their individual line and looking to spot potential commercial advantages from some particular wrinkle among the various proposals in the document.

From where I’m sat, the picture is slightly different, mainly because years of writing about the financial services industry has shown me that whenever a major report of this sort is issued by a regulator, there are several things you can virtually guarantee will happen.

The first is that journalists’ email inboxes will clog up with scores of “reaction” press releases from assorted interest groups, all placing their own spin on the story. Last week’s unveiling of the FSA paper was no exception to this rule.

The second thing you count on is that almost all of this comment will be blandly positive, no matter what the actual story is. So, for example, of the two dozen or more emails I received last week, not to mention another six or seven posted on various financial PR websites, most of them had something nice to say about the RDR – with the one major exception being the ABI, which I’ll come to later.

Third, in the immediate aftermath of a report like this, the vast majority of the media ends up taking the narrative line the FSA wants them to. So, for instance, in this case it is that “commission-bias is removed from the system”, in the regulator’s own words.

Interestingly, the work for the FSA on adviser remuneration by IFF Research suggests there is significant suspicion among consumers about commission bias. In that sense, IFAs who have always – understandably – argued there is no evidence of IFAs using commissions to rip off their clients are missing the point.

The problem, it seems to me, is that while the narrative the FSA wants us to accept is that it has finally cleaned up the Augean stables and ushered in a new era of professionalism for independent advisers, I find that hard to believe.

Yes, the drive towards tougher qualifications for advisers is welcome. But to suggest the new rules on training and competence will really mean IFAs (and others) reach a standard equivalent to someone in their first year at university – by the way, everyone knows that a first year at uni simply involves people receiving an A-level-style grounding in their new chosen subject – is fanciful.

And even if it were achieved, is this really the amazing breakthrough that some advisers want us to believe?

A second concern is over the timing of the proposals in the RDR. To actually put off the proposed changes until December 31, 2012 hardly strikes me as having any great sense of urgency. If the issue was that of dragging IFAs into line, the deadline should have been 18 months at most, not three-and-a-half years.

My biggest concern is that the history of financial services regulation over the past 20 years is studded with grandiose announcements of changes designed to improve the lot of consumers but which fail to achieve anything substantial. Cast your mind back to the depolarisation reforms of 2002 and you can see how the menu system actually allowed financial advisers to continue to do exactly what they had been for the previous 20 or 30 years.

Similarly, allowing IFAs to agree with their clients the fees taken from the products they recommend will, to my mind, only be effective for a minority of consumers.

The majority, forced into an unequal relationship with their IFAs, not knowing what to ask about products, charges and hourly rates – and having to understanding what service to expect or demand – will find themselves bamboozled into accepting whatever they are offered, regardless of how good or bad it is.

Does any one really expect to see hundreds of thousands of prospective clients carrying out beauty parades of IFAs up and down the country, asking them how much they charge and what the breakdown is in terms of service?

The main proposal of significance to have come out of the RDR, in my opinion, is the return of polarisation, with salespeople having to tell their customers that they give “restricted advice”. I love that term “restricted advice”, just as I think the fact that all advisers, regardless of distribution channel, will have to have the same qualification standards is brilliant news for consumers. All the evidence is that so-called “basic” or “simplified” advice only leads to greater potential mis-selling.

A level playing field of this sort makes it much more expensive – and therefore difficult – for banks and life offices to use so-called “simplified advice models”. Which is probably why the ABI, together with one or two life companies, was almost alone in uttering a few pallid words of criticism about the RDR. Great, isn’t it?

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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