My initial impression of the RDR final rules was one of disappointment and closer examination has only intensified that feeling of a missed opportunity.
Higher levels of professionalism and greater transparency are worthy goals. Embracing them makes sense because it will not only lead to a more
robust industry but will also enhance the public perception of our profession.
But will these RDR proposals achieve this and is the cost acceptable? Unfortunately, all the indications now point to a widening rather than bridging of the advice gap.
What frustrates me is that it comes at a time when professional financial advice could be key to engaging consumers and improving the UK savings ratio.
It has been shown by many studies – and acknowledged by the FSA – that people who receive professional financial advice recognise the benefits and trust their IFA. But rather than increasing capacity, the FSA’s own RDR cost benefit analysis predicts that industry costs will soar and we will lose large numbers of firms (23 per cent), advisers and revenue. More importantly, a large number of consumers (11 per cent) will cease to have access to financial advice.
Unfortunately I see nothing within the RDR proposals that leads me to believe this advice gap will be serviced by other means, either through simplified advice or basic advice. I doubt that simplified advice can be offered economically at QCF level four and I would have serious misgivings if qualification standards were set lower than for other advice areas.
So, rather than a coherent set of proposals designed to widen consumer access to financial advice, we have been handed measures that will reduce access, reduce the number of advisers and will cost the industry £1.7bn.
I would argue that the FSA could achieve its key objectives more effectively by focusing on two key elements of the RDR and dispensing with the rest.
Over the past four years, the argument for getting rid of commission on investment products has been broadly accepted by providers and advisers alike. I believe we should get on and do just that.
We urge the FSA to deliver meaningful detail on this important change. Providers and advisers need clarity on the mechanics of it and we need detail now, not further consultation in Q3.
We also need clarity on the tax issues. To have a situationwhere a fee can be subject to VAT, exempt from VAT or relievable against income tax – depending upon the product bought and the method of payment is a complication none of us needs.
Then we come to higher professional standards. It has been 15 years since the introduction of the benchmark qualification and it is high time this was updated and made relevant to the more complex world that we live in today.
The emergence of alternative qualification routes, such as the diploma in investment planning recently unveiled by Aifa, provides the spur for all advisers to strive towards meeting those higher standards.
It comes at a time when professional advice could be key to engaging consumers and improving the savings ratio
But I make the same plea to the FSA. Rather than changing the professional standards bodies and considering ideas such as a code of adviser ethics, let’s just agree the benchmark and approve the qualifications. We can then focus industry resources on supporting advisers to make the journey to higher professional standards.
This would leave us with questions over advice labelling, definition of independence and restricted/simplified/basic advice. I would drop these measures, as they do nothing to improve consumer confidence. There is a pressing need for proposals on simplified advice but the FSA should join with us to find a solution rather than saying that the industry should design schemes for them to consider.
The RDR began with an objective to improve consumer access to advice, yet we are left with a set of proposals that appear to be focused on minimising the risk of misselling. Given the relatively low level of misselling in the IFA community, changes being made to protect the few will instead hurt the masses.
I believe that a huge opportunity is being missed and I am making a plea for a commonsense approach to implementing the RDR. If we get the RDR transition right, we will have the capacity to look after the financial wellbeing of the British public for generations to come.