We all need alternatives in life. For many years, I have had to digest and interpret trust and pension legislation and to save me going gaga I read at least one chapter a night from a crime novel. Some of these novels are formulaic, others have more of an unexpected twist.
Last week’s publications by the FSA was in line with the formula group. It was highly prescriptive and in some parts went further than many expected. It also avoided those badged as independent financial advisers yet not offering advice being forced to come down on one side of the fence only.
As to the role of the FOS – simplified advice died in this report as the FSA stated it would not influence or interfere in FOS’s deliberation on how simplified advice would be treated.
The emphasis remains on suitable advice which then implies that no short cuts are acceptable to the FSA or FOS. Before we rush to criticise this stance, remember that the Treasury is the one to blame due to its lack of effort in the world of simplification.
Or perhaps we should know this already, given it “simplification of pensions” is not something it can live with for very long. It is the need to make decisions reversible in whole or in part, such as Isa or pension, that makes suitability so difficult to de-skill and to reduce cost.
It is also clear there is a lack of understanding in the costs that some required actions will introduce, rebating commission is great in principle but it costs money to validate, then redirect them, yet that does not seem to be recognised.
But it is the increased focus on things investment that has provided much of the discussion points and adverse reaction. I would be disappointed if the FSA backtracked on them.
Adviser-charging has opened up the debate over costs in general and the regulator has taken the opportunity to have a pop at areas where income is paid but little value is provided to the clients. No one should be under any illusion here, referring to a discretionary manager yet retaining the lion’s share of the ongoing charge is not going to survive, and nor should it.
Another area that may be affected unintentionally is divorce funding loans. Where those who lent were then expecting to be appointed to advise on investments after divorce, this too seems to be adversely affected, as is re-negotiation of terms for existing policies, this is not good news for the consolidators who were relying on that very strategy to drive the value out of legacy products.
Then the real piece de resistance – where legacy investments’ trail commission will cease unless individual clients grant their permission, as suggested under the new rules following the change of an adviser, it is unclear what will happen if an adviser simply changes firm.
There will be some who feel that life can go on after a few tweaks but they are the ostriches. The RDR will bring change and now is the time to acknowledge the distance we have to travel.
All these “sub-plots” add up to a spirited finale as the FSA seeks to impress Mr Cameron and his team. There is no doubt that the client of the future will benefit from a sector where client permission is sought and not assumed.
For those interested in crime novels, I recently completed the Millennium Trilogy by the late Stieg Larsson. The style of the book and the way information was gradually revealed made me wonder if the RDR was inspired by its deep and complicated plot line.
Robert Reid is managing director of Syndaxi Chartered Financial Planners