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Tories blast ‘awful’ impact of RDR in cutting access to advice

Conservative politicians have hit out at the “awful” impact of the RDR for reducing consumer access to advice.

Speaking at a True and Fair event on Tuesday evening, Lord Howard Flight said the rules have made people worse off but “everyone seems rather proud”.

He said: “The RDR was a rather snobbish attack on IFAs, most of whom were looking after old ladies to get their retirement income.

“Most ordinary people have not got access to advice. On commission versus fees, I hate paying fees because it’s out of after tax income. I would far rather pay commission that is rolled up in the cost as long as I know how much I am paying.

“I think individuals are worse off on aggregate as a result of RDR. It’s awful that other than the professional classes advice is not available to anyone. It’s awful but everyone seems rather proud.”

FCA chief executive Martin Wheatley says he is “concerned” about the impact of the RDR while the Treasury select committee are considering a review next year.

Speaking alongside Flight, Conservative MEP for Wales Kay Swinburne said the EU discussed replicating the RDR under Mifid II rules but other nations felt it went too far.

Instead, Mifid II imposes greater transparency requirements on advisers but commission will not be banned outside the UK.

Swinburne said: “RDR when it was looked at in the cold light of day by other countries, they decided it went too far the wrong way but they didn’t want to prvent member states from doing it. If it works in the UK then we can go further next time around.

”However, I am already having constituents writing to me saying it is outrageous they don’t have access to a financial adviser. They are paying up front several thousand pounds and it’s a difficult psychological barrier.”

Earlier this month, former Treasury financial secretary Mark Hoban told Money Marketing the RDR was “nothing to do” with him.

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Comments

There are 17 comments at the moment, we would love to hear your opinion too.

  1. The original core requirements of the RDR, namely higher qualifications and customer-agreed adviser remuneration (though I still disagree with the scrapping of commission), are hard to argue with. The situation in which we now find ourselves has arisen as a result of the FSA, without restraint from any outside body (the old lack of accountability chestnut), having endlessly embellished its RDR, as originally approved by Parliament. Effectively, once the FSA got the green light, it decided Right, now we can add whatever [more] we want and just explain all these extras as “refinements” or “fleshing out”.

    Though he can’t actually articulate it in such blunt terms, at least not publicly, Martin Wheatley must surely know this and and may (we hope) be considering ways in which certain RDR requirements can be relaxed without the FCA being seen to be back-pedalling. It may be a tricky nettle to grasp but grasp it he should.

    Then again, Clive Adamson seems to think there isn’t an advice gap whilst, with a casual shrug of his shoulders, Adair Turner has declared it to be an inevitable side effect of the RDR (so that makes it okay does it?). It might help if they were all singing from the same hymn sheet.

    For what it may be worth, except for those of the most modest means, I’m not sure there is a major advice gap. It’s just that those who need advice now have no choice other than to pay rather more for it than they used to. The question is whether or not all the extra work and thus costs are actually likely to produce reliably better strategies and outcomes.

  2. I love this statement Lord Flight states on RDR “everyone seems rather proud”

    Personally I have lost count over the past year and a bit, of prospective clients (new) who have “gone away to think about it” after I have laid out my charges ? and the vast majority have been regular premium business; which still alludes me ?

    I must be honest and say my revenue has increased since 01/2013, however I put this down to spending so much time and effort in the previous 2 years getting my business ready for RDR (and I believe I kind of worked that kind of model anyway ?) and study and passing silly exams, compound this with a huge amount of worry and pressure my revenue dropped like a stone 2011/2012.

    IMHO; has any aspect of RDR been a success ? NO!!

    Also if I look at what it has cost me and my business in pounds shillings and pence; Well ! put it this way it would make my old Jewish boss weep !!! (no racist pun intended!!)

  3. I am no lover the European regulator but when the entire continental regulator decided that it was a bad idea, I think that even the FSA should have taken note. However we are where we are and Julian I totally disagree with you about Martin Wheatley. Of course he can publically say it has turned out to be a train wreck but he will simply choose not to. The FCA will carry on with the “good work” it does on beating the cube into the circular hole. Mr Percival had the chance to to stand up and be counted over the whoel Indy definition and say “we clearly go this wrong – we realise this and are going to change the definition based on common sense” but he didint and what have we got? More and more guidance around it that will give them ammo to beat IFA’s over the head with. The whoe thing is a monsterous disaster that has become out of control. The FCA and parliamnet were told no end of times that this would happen by those of us on the ground but as usual they simply ignored the warningsa and went ahead with it. It is all too little too late and even if it stopped now will take years to unwind. The whole thing is repulsive

  4. I agree with the sentiment of this article! When the idea of RDR was rolled out by the FSA so many of us, and the House of Commons, demanded ‘granfathering’ as it was unfair to force IFAs to re-qualify when they had over 20 years experience. Also, it was a sledge hammer to crack a nut by disallowing commission. It wouls have been so easy to set maximum commission amounts per different product. But those in FSA were not practioners so couldn’t see the damege RDR would cause. Now they can! Thanks Mr Flight for your honest and sensible review. It’s a shame so many IFAs have been pushed out of their livlihoods and ordinary folk have lost independent advice.

  5. I said time and time and time again – all that needed to be adjusted was that all providers should be made to pay the same commission level for the same class of advice – therefore avoiding bias – end of.

  6. In my previous comment I accidentally refered to Lord Flight as Mr Flight. Sorry, no offence intended.

  7. The problem with capping commission at, say, 3% of the sum invested is that 3% of £500,000 is an arguably excessive £7,500 (unless a great deal of work has gone into constructing the portfolio, etc).

    Much better, IMHO, would be Customer Agreed Commission, so the focus would on the amount rather than on an arbitrary percentage.

    This works because a couple of years back I picked up a couple of clients who’d been “advised” (not very well either ~ they’d not even recommended utilising the wife’s ISA allowances) by one of the big banks to invest £130,000 with 3% commission (disclosed in not very big print at the foot of page 7 of a post-sale illustration).

    Apart from barely understanding what they’d been sold, they (the clients) thought this was excessive, so they sought me out and (though I say it myself) I did twice as good a job for not much more than half the commission.

    Commission itself is not an intrinsically bad remuneration mechanism, it’s the way it’s been misused that’s bad. But the FSA refused to recognise this or to listen to any representations from those of us actually doing the job so, in its best tradition, it was the old hatchets and sledgehammers treatment for commission.

  8. I agree generally that some commission payments seemed rather high for the work done. However, I did suggest earlier ‘maximum’ levels per type of product. Anyway, it was always up to the IFA to tell their client what they were being paid. Also, one should allow a ‘marketing’ overhead when assessing payment. Prospecting isn’t free and I found so many people who needed my advice even though I earned nothing because I had to tell them to leave everything as it was. This is the real world out there that the Regulator doesn’t know about, but still wants to control rather than regulate.

  9. Adviser charging anyone? Does that not essentially do the same thing as commission? i.e. no additional cheque.

    Has anything really changed except clients now know exactly how much advice is costing them?

    If they walk away then its the adviser that should be asking themselves questions.

  10. If you recall, Matthew (whoever you are), Adviser Charging has made things much more complicated and difficult when it comes to Investment Bonds, both on- and offshore. Leaving (customer-agreed) commission on these would have avoided these problems. But, as usual……..

  11. Julian – Complicated in what way?

    Does the client not know how much it is costing them to invest in a bond now? Has the removal of commission ‘give-up’ and other backhanders made the situation less clear for them? A bond is a wrapper; it has a fixed cost, add your advice, and any investments held within it to arrive at the cost to the client. I don’t see where the confusion lies?

    Maybe you can expand on your statement?

  12. Perhaps you could list the ‘backhanders’ for us Matthew?

  13. Yet again we see politicians playing to the gallery rather than doing anything worthwhile.

    1. Matthew has put it very succinctly. With the advent of adviser charging nothing has changed – except the fact that those who relied on disclosure on page 378 of the KFD will now have to come clean.

    2. Why are politicians whinging now? They have had years to suss it. Were they too dim to see the realities or to understand the situation?

    3. There is no point in them whinging about the effects of regulation when they have afforded the regulator a free and un-accountable hand. If they are really dissatisfied then they should enact legislation to make the regulator accountable and to act within the normal parameters. In regulatory speak this is high level whinging instead of the low level in which they are currently engaged.

    4. Mr Whatley’s concern rings a little hollow – even if true. When the next regulator comes along in a few years’ time – they too will seek to blame predecessors of anything that is not right.

    5. Those bleating about people who are unwilling (or unable) to pay – please refer to point one – they have always paid – but have just been lied to. If you have £10k to invest, then if the charge is (say) 3% then you in fact have £9,700 to invest. QED. Then of course it always supposes that those who now complain about paying advisers are the ones who actually engage in the first place. Many of them don’t and wont. For those that are less well-off and genuinely wish to – wouldn’t they be better off first reducing their debt. Higher interest rates are approaching. What use is a £10k investment today if in 12 months’ time it is encashed to pay higher interest charges?

    Instead of all this let’s have a campaign to stop the crocodile tears. It is really making me rather nauseous.

  14. @ Matthew.

    40% taxpayer requiring income from a bond. Two options: 1) Pay a fee from net income (therefore the actual cost of the fee is considerably inflated. 2) Pay a fee by adviser charge via the product.

    {Oh, there is also a 3) Don’t pay a fee and do it direct. Bit tricky if its a DGT or similar!}

    Under 2), the cost of any on-going adviser fee reduces the amount available under the 5% withdrawal allowances for the client.

    Pre-RDR, the client paid via the annual management charge and retained the option to preserve their whole 5% allowance and also to avoid paying for a fee from their ‘net’ income.

    Take this a stage further and any initial commission ‘rebate’ from the adviser enhanced the ingoing investment, thereby allowing more income to be available for the client under the 5% rule.

    You are welcome, no charge (this time)!

  15. I agree with Steve D – I rarely used bonds, BUT they have there uses and if you were using a wrap pre RDR, the deduction by the adviser was in addition to the 5% withdrawals and in most providers terms, was deemed “commission” (look back at old Transact terms for instance) no bond or OEIC bias based on commission as the charge by the adviser was the same across all products, but treatment for the CLIENT was better pre RDR.

  16. @ Steve D – Can you not then ask the client to write you a cheque and pay you directly for the ongoing then? Thus keeping the fees seperate to the wrapper?

  17. @Matthew, yes you can, but it then comes out of the clients TAXED capital or if they want it to come from the bond reduces the 5% available to support income needs so effectively the inability to pay from the bond capital via commission has increased the tax liability for the client (not a lot) but it makes it harder for the client to understand with all the other things we have to explain to them). Most of RDR had good intentions, the problem is that the unforeseen consequences as they became “seen” were ignored by the then FSA who despite warnings to slow down and perhaps delay from advisers and then the TSC, decided to plow ahead regardless.

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