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The review preview

Money Marketing asked some of the leading figures in the financial advice sector what they would like to see and what they expect to emerge from the FSA’s retail distribution review in next week’s discussion paper.

Peter Hargreaves
Chief executive
Hargreaves Lansdown

“I expect it to be full of placatory words. It will not address the two issues that people really want sorted out – trail commission and life companies.

“For me, trail has been a saviour for the industry as it means a car has value for those who service it. The trouble is sorting how much someone should get for that service. The ABI does not understand retail and continues to talk about reducing commission but they must make sure that reduction is a sensible amount.”

Nick Bamford
Managing director
Informed Choice

“The FSA has applied its undoubted intellectual capacity to this review but I wonder if they understand the law of unintended consequences.

‘They have told us that the distribution model is broken and that they expect the industry to mend it. In other words, we are responsible, not them for the outcome. This exposes all of us to the vested commercial interests of the big players.

“The banks and, to some extent, the insurance companies will have a field day because the far reaching changes of the RDR will destroy the allegedly broken independent financial adviser model. This is the model, remember, that delivers 65 per cent or more of the financial services products to the consumer.

“What will emerge will be the dominance of banks at the lower and middle end of the market.

“Only professionally qualified firms will survive at the higher end. And if you think that I am being over-dramatic, then in one week’s time we will know.”

Allen Rosengren
Chief executive
Falcon Group

“Clients, not regulators, should determine how advice and product is paid for. Transparency, competition and choice must be preferable to regulatory intervention.

“Decent firms which demonstrate good outputs should gain regulatory dividends. Quality standards should be applauded and recognised by the FSA.

“The FSA should aim to build public confidence in the reputation and good standing of UK financial services. It is ironic that regulation over the last 20 years has resulted in less choice and less access to financial advice and services.
“The continual focus on cost rather than value has caused the destruction of direct sales and, with it, the access which many once had to simple savings and protection solutions.

“There have been many unexpected and unforeseen outcomes to regulation over the years and the FSA should be careful to avoid taking precipitous action in relation to the RDR which could cause the further reduction in the availability of advice.

“The professional advice sector has been in a continual state of change over many years and we need a long period of regulatory stability enabling us to focus our full attention on delivering quality advice and service to clients.

Not especially original, I am sure. However, given principlebased regulation being introduced, the RDR should, in my view, be totally focused on positive, beneficial outcomes and high quality of outputs.

The UK financial system is the envy of Europe and the world – it is time that we recognised this and celebrated our merits, rather than continually undermine our own confidence and thereby reduce the amount of conviction and investment that many banks and insurers are making in the UK while forcing some to consider relocating or refocusing their efforts elsewhere in the world.

“UK financial services regulation could and should be a power for good, but has on many occasions in the past proved otherwise. Let us hope that the RDR delivers real and tangible benefits to all the stakeholders interested in the outcome.” <

Mark Dampier
Head of research
Hargreaves Lansdown

“I would expect more of the same as the market continues to move towards the platform model. It is a move that should see much of the adviser business aligned with a back-office system that does all of your valuations in one place.

“Investment choices and administration account for a significant portion of an advisers business and that is something that is only going to grow, but it is also a question of service and cost.

“How much can an adviser push in terms of cost for the service that they provide, particularly when industry standards on service still need to be raised?

“If there is one thing that the retail distribution review has to address above all, it is that growing dependence on investments as pensions are now being sold on their performance. Many intermediaries are not clued up on it as an issue at all.”

Peter McGahan
Managing director
Worldwide Financial Planning

“There needs to be a complete ban on commission and a clear polarised differentiation between independent advice and the rest of the market.

“I believe the rest of the market can be serviced by off-the-shelf stakeholder-style polices which the consumer can be navigated to through decision trees and an increase in financial education at both school and in the workplace.

“There needs to be a big focus on driving up professionalism in the IFA sector, especially for investment business, with higher minimum standards enforced by the regulator rather than through a professional body.

“I am slightly worried that the RDR will look to empower banks to move into the IFA sphere, where they have no place and do not have the expertise.

“Depolarisation has failed but the RDR gives the FSA the chance to remove all the current problems and create a sustainable industry where advises and consumers can flourish.

Anna Bowes
Investments manager
AWD Chase de Vere

“We need to see a transparency of charges so that the commission bias is eradicated. Consumers need to understand the difference between the cost of advice and the cost of the product as this will build up the badly needed consumer trust and encourage more investors to seek the advice they so badly need. Customer-agreed pricing should help.

“However, it is also important to understand that many are unable or unwilling to pay an up-front fee for the advice, so the industry needs to be able to offer different structures to allow for payment to be taken in a number of different ways. All this needs to be done with a minimal amount of paperwork for the client, as they will just not read it.”

Ken Davy

“I believe the RDR should clearly and unequivocally endorse the value to the consumer of advice, especially independent financial advice.

“It should also acknowledge that it is for consumers in an open competitive marketplace to determine how advisers are remunerated, not the regulator.

“On professionalism, the review should support the tremendous progress made in recent years, particularly the achievement of chartered status. It should make clear that the advice model, while not perfect, is definitely not broken. IFAs’ 60 per cent market share generates only about 3 per cent of claims.

“UK financial services are one of the most competitive and professional in the world and the envy of European consumers. The retail distribution review should have the courage to avoid suggesting radical change for change’s sake.”

Simon Chamberlain
Group chief executive

“After all the heat and noise, I hope it has been worth waiting for. There is general acceptance there needs to be change within the retail investment market in the way that products and designed and distributed and if this discussion paper leads to meaningful changes which benefit the market, then I will welcome them. Dealing with each of the main themes of the review:

– Sustainability – it is important for consumers to have confidence that the organisations they are dealing with have the necessary financial resources to deliver not only initial advice but also ongoing service and it is particularly important for there to be effective regulation of smaller intermediaries some of whom appear to operate under the radar.

– Commission – there is a lot of nonsense talked about fees versus commission and I hope this paper sets out some sensible and workable proposals.

– Professionalism and reputation – there needs to be clarity on what advisers do if the market is to be better served and I know my colleague Roderic Rennison who chaired this workstream has been pursuing this and other related themes.

– Consumer access to financial products and services – there needs to be a recognition that for some elements among consumers their priority is to manage debt not invest and not enough emphasis has been placed on this.

“In summary, the FSA has set high expectations. The discussion paper not only needs to address these effectively but, equally important, momentum needs to be maintained so words of debate are turned into actions which benefit consumers, providers and the market as a whole.”

Harry Katz principal Norwest Consultants “”Judging on past form and what seems to be coming out of the woodwork, I would not be at all surprised if it results in the usual cock-up.

“We have already had heartache, aggravation and hard work brought to nought with the IDD and menu. Mifid was not a sprung surprise and has been on the radar for some considerable time. From what the FSA has let slip and from the CRA report it seems that their agenda was to reduce commissions. Not their mandate at all as far as I understand.

“Then we had depolarisation. Every informed industry commentator and even Which? thought this was a retrograde step. Professor Gower is probably spinning in his grave.

“We are still in the thick of TCF and the move to principle-based regulation and I am sure no one needs reminding of the worries and misgivings here.

“I am afraid our regulator is like the naughty child picking at a scab. Sure, things could do with improving, but for heavens sake allow some healing time between all these changes. Stop picking at it! Please!”

Len Warwick
Warwick Butchart Associates

“The review considers inefficiencies, incentives, professionalism, accessibility, and regulatory barriers thus impacting on the industry (manufacture/marketing), the profession (advice) and consumers.

“Polarisation and depolarisation, commission agreements and none, a menu and shortly no menu. We all crave stability. Let’s see a long-term strategy to encourage saving.

“Many IFAs, however paid, coping with regulatory overheads and conscious of best using their time and qualifications, prioritise HNW individuals. We cannot expect others to ignore cheaper distribution of simple products to the man in the street. More interest in financial prudence benefits all.

“I hope the review considers the appalling damage inflicted on potential savings by the debt industry.

“I chaired the committee which delivered compulsory minimum T&C standards for all advisers. It sparked greater individual self-improvement. I now hope for greater consumer education to plug the gap between what we know as practitioners and what consumers understand, thereby reducing complaints.”

Stanley Lovell
group chief executive
IN Partnership

“My major concern is the unbalanced emphasis on IFAs and not enough on other distribution channels, such as the banks.

“If one considers that complaints about financial products made to the ombudsman, were mainly about product providers and banks – nearly three-quarters of all complaints, then it is clear that there is an unhealthy bias against IFAs.

“The IFA channel only had 14 per cent of the complaints when IFAs produced over two-thirds of the business.

“Furthermore, the FSCS has confirmed that a high percentage of claims relating to the advisory sector are against firms that have legitimately left the industry well before claims against them have materialised. This is the measure of the issue and it is high time that the banks came under much closer scrutiny than currently.

“I hope the review will highlight that IFAs, in the main, give an excellent service to the general public and most will testify to highly satisfied clients. Too little research has been done in this area and opinions are being expressed that do not have any basis in fact – a dangerous foundation on which to make changes affecting the livelihoods of IFAs.”

Ian McIver
managing director
Whitechurch Network

“I think the fees v commission debate is oversimplified and actually can cause in-fighting among IFAs and that is wrong.

“IFAs should accept that they have different models for different clients. IFAs are either good IFAs or bad IFAs – the payment medium is irrelevant really.

“Whitechurch has a special interest in the payment of trail/fund-based/renewal commission. In essence, we do not charge against it, so one can argue that in one way we subtly encourage members to adopt a model that builds such commission. As such, we need a clear output from the RDR on what is expected to happen in the future for renewal/trail/ fundbased commission to continue.

“I would like some clear definitions on generic advice and similarly for the possible different types of adviser – if they come in. The key words here are ‘clear definition’.

“Finally, what started as an investment-based RDR seems to have become an industry-based RDR so protection and mortgages have been pulled into the mix. Again, I would like to see any outputs clearly defined to the respective markets.”

JUstin Modray
head of communications

“My main hope for the review is that it will go a long way to stamping out the shady salesmanship that continues to blight our profession.

“This requires a shift away from initial commission, which I firmly believe is responsible for 99.9 per cent of all misselling. Focusing instead on trail commission or ongoing fees would reduce the incentive for advisers to ‘sell’ and also significantly empower consumers, putting them in a position of strength when looking to switch from one adviser to another. This, in itself, would encourage advisers to service their clients better, as it will dent their bottom line if clients move their business elsewhere.

“I would also welcome commission unbundling, as this would allow unit and investment trusts to compete on a level playing field.

“Training is important. My impression is that far too many IFAs are not fit to advise on investments, even if they do have good intentions. Fund supermarkets and platforms present a great opportunity for our whole industry to do the right thing and treat customers fairly, so it is disappointing to see smoke and mirrors pricing already creeping in to some platform investment bond wraps to fund fat initial commission. Platform providers should be encouraged to adopt universally transparent pricing.”

Keith Richards
distribution and development director
Tenet Group

“We are hoping that much of the review so far will have identified that one size does not fit all. Consumer needs vary significantly and it would be impossible to suggest that any model is the best from either a consumer, or commercial basis. We would not be surprised to see a proposal for more transparent advice/service models, developed in line with consumer requirements, which may equally be in line with adviser status and qualification.

“We certainly need to be more joined up as an industry – one which understands and respects itself will ultimately gain more respect from the people it serves and those who regulate it.

“In the legal profession, for example, it is easy for the consumer to identify that the barrister offers a more qualified level of service than a solicitor, however no one consequently believes that the barrister provides better value than the solicitor, nor would they necessarily be seen as more professional. We also hope for greater recognition for the benefit that larger organisations provide to the consumer, the adviser and indeed product manufacturers, coupled with the fact that the review may well reveal the weakness of small firms in a fragmented industry.

“Let us also hope the commission versus fee debate establishes that both can be appropriate – it is how you apply them.”

Robert Reid
managing director
Syndaxi Financial Planning

“Depolarisation will soon seem like the least of our worries when the market is chopped into three parts. The question is who will end up where?

“In my opinion, we will end up with three segments – generic advice, product distribution and financial planning.

“For me, the upper layer of financial planning holds the most issues where it will be essential that it is actually those delivering financial planning as opposed to those who use it as an illusory title.

“The other challenge is generic. If the FOS can still inflict pain at this level, then it is one segment that could be stillborn. We need people to have access to informed opinion. If this is frustrated by the FOS, it is no go for the NPSS.

“In summary, change is coming. For the professional adviser it will be good, for the others,we need to wait and see.”

David Brattesani
partner threesixty services

“The review has to be the most significant regulatory development for years. This is the opportunity for the industry to review practices and ensure that a sustainable environment is maintained.

“Of the five workstreams within the review, we feel the most significant will be the sustainability of the distribution sector. The four other workstreams – professionalism and reputation, impact of incentives, customer access and regulatory barriers – are likely to be managed more easily and many of the principles adopted by more forward-thinking intermediaries are already working towards the regulator’s objectives in this regard.

“The question of sustainability may, while offering an opportunity for the better IFA practices, pose a threat to the mass market as there is likely to be considerable pressure to raise capital adequacy requirements and put greater pressure on firms to ‘self-insure’ potential claims post exit rather than relying so heavily on FSCS.

“There is likely to be pressure from the banks to increase capital adequacy requirements, as this suits their business models.

“Threesixty has already done a lot of work with our client firms to ensure they are operating efficiently and profitably and they are more likely to deal comfortably with increases in capital adequacy requirements. We will continue to work closely with them as we analyse the contents of the review.


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