Tom Baigrie: Fixing the pitfalls of the RDR

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How frustrating is it to be proved right all along? It merely reveals your powerlessness and lack of influence, the weakness of your political and lobbying skills, and your helplessness in the face of bureaucratic conviction.

All our attempts to convince the FSA that Callum McCarthy’s need to deliver a dramatic speech to a powerful audience at Gleneagles was no grounds for the wholesale destruction of an advisory sector — which did infinitely more good than harm —were for nothing.

My point was that independent advice had to be regulated to evolve into a better model, while serving the whole community, rather than be driven through a crash course to perfection. Rumour has it we lost the argument by one vote at the relevant FSA board meeting.

Now we have a new Government, wisely alarmed at the lack of advice in the world of choice and flexibility, commissioning a re-review of the situation. Let’s put past failures behind us and try once again to be heard.

  1. A good place to start is to take another look at the points I believe the re-review should face up to if it is to serve the country better than the first one has:
  2. Regulation has made giving genuine advice very expensive.
  3. Consumers are extremely reluctant to pay the fees and most do not when alternatives exist that appear ‘free’.
  4. Those most easily able to offer such ‘free’ advice are the manufacturers of the products used to enact the advice. Insurers, fund managers and banks can easily cover distribution costs by manufacturing profits.
  5. Where advisory choice is limited, manufacturers will use that limitation to shift products, increasing margins by relying on marketing and consumers’ desire to trust nice businesses. This will work but not for the consumers.
  6. It is vital that advice — online or off, robot or human — offers a choice of manufacturer. It must be independent to a healthy degree.

There was a time when we were on a good road towards resolving this conundrum. The system doing this had an odd name but the right idea, and it worked. ‘Polarisation’ was destroyed by bank and insurer lobbying of the FSA.

Their success took them into a world of hard sell, massive fines and withdrawal, while the thousands of independents serving ordinary people became collateral damage. We who survived did so by moving to serve the rich, who are happy to pay our fees.

And so with magnificent sangfroid, the same manufacturing lobbyists are now first through the Treasury door to explain how they can be trusted to fill the resulting gap. I am left trying to work out how to get back to Portcullis House in order to explain to a new generation of the powerful that the only consumer safeguard that works in a free market is intermediation, independent of manufacturers. Wish me luck.

Tom Baigrie is chief executive of LifeSearch