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Tories must offer greater RDR clarity

The Conservative Party’s radical plans to scrap the FSA, pass prudential regulation to the Bank of England and set up a Consumer Protection Agency leave more than a few question marks surrounding the retail distribution review.

Speaking to Money Marketing this week , Tory Shadow Treasury Financial Secretary Mark Hoban was broadly supportive of the RDR but refused to be drawn on specific aspects of the review and would not commit to the current 2012 timescale.

Instead, Hoban spoke of the “huge benefits” for IFAs of the RDR declaring it was in the interests of consumers and advisers to meet the challenges set out, including increasing access to advice.

But certain aspects of this week’s white paper appear to show that although the main principles behind the review are agreed, the Tories remain to be convinced about some important elements of the FSA’s plans- particularly around competition and accessibility of advice.

Throughout the progress of the RDR the Conservatives have kept a relatively low profile, save for a few generalist comments welcoming the direction of travel. And politically this made sense, there was no need to get bogged down or dragged into industry arguments which could easily be spun by Labour whilst the review was in its infancy.

The problem is the Tories are now not just an Opposition party, they have positioned themselves as a Government-in-waiting. This week’s Ipsos-Mori poll puts them 16 points ahead of Labour and a general election has to be called by next May.

Whilst it would be wrong to award the election up to 10 months early, there is a good chance the Tories will be in power after next Spring, or at the very least hold a powerful position in a hung Parliament.

By May 2010 we are likely to have a new administration in charge of this country who have just outlined concrete proposals to scrap the FSA. At the same time the industry is being forced to spend huge sums of time and money to transform their businesses to meet the December 2012 deadline for complying with the FSA-led RDR.

The FSA estimates the costs of complying with the RDR will be around £440m although many in the industry have warned this estimate is far too low and Deloitte, who helped the FSA come up with these figures, says the data cannot be relied upon.

Estimates of over £2bn are currently being thrown about and concern is growing that many advisers firms still do not appreciate the gravity of the changes the FSA is proposing, especially around adviser charging.

It is no longer good enough for the Tories to offer bland supportive comments about the RDR. Over the next few months they must properly engage with the debates that are raging in the industry and form their own view of what they would do if they were in charge. This must then be articulated to the industry as soon as possible and be taken into account my policymakers drawing up the final plans for the RDR.

This week’s Tory white paper focuses on consumer access and competition. Where are the Tories on issues such as the concern that consumer access to good advice could be limited by the move to adviser charging? Are they are content as the FSA seems to be that damage to consumers would be limited?

How concerned are the Tories that the RDR could limit competition in the advice sector? Could the transfer of regulatory duties from the Office of Fair Trading make it easier of the CPA to price regulate and might this offer alternative ways of dealing with adviser remuneration?

Would the Conservatives be more receptive to proper work-based assessments as an alternative exams? Do they share the industry’s concerns about a ban on factoring?

This is not to say that RDR policy changes would necessarily be IFA friendly. Talk in the white paper of an “expensive sales process” making some products unaffordable and the “proliferation of choice” in some instances limiting consumer comparisons could see the Tories offering leeway to the banks around tied advice standards.

This week, SimplyBiz chairman Ken Davy repeated his call for the RDR to be delayed to take account of a potential new Government, as well as the economic crisis and the likely introduction of new European regulations in 2014.

Davy, like many others, is not a blinkered road block to reform, but rather a pragmatic realist with a vast amount of industry experience who has been here before in terms of the change in regulatory agenda that accompanies a new Government.

Personal Finance Society chief executive Fay Goddard warns that doing nothing in the hope that a change in Government will whisk away all your RDR headaches is a high risk strategy- and she is right.

There is a clear direction of travel of the RDR in terms of increased professionalism, greater transparency of charges and a fairer deal for the consumer which most people agree is a positive thing and will remain in place regardless of a change of Government.

But before spending millions of pounds on abiding by new regulations the industry must be as sure as possible that all these changes will be required.

Likewise, a frank discussion about the deadline for the RDR is needed in the context of Conservative proposals. Is it realistic to suggest that the scrapping of the FSA and creation of the CPA will not affect the timelines agreed for the review?

This week’s paper on financial regulation is the most detailed set of proposals the Conservatives have put forward yet across any portfolio.

But more needs to be said regarding the RDR. Over the next few months the Conservative Party must give us a more comprehensive view of their intentions for the sector.


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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Scrapping the FSA
    If the Conservatives form a Government next year and take a decision to abolish the FSA, a piece of complex legislation will be necessary, accompanied by a major period of regulatory personnel changes. I can’t see that being done by 2012. Bits of the RDR which are not opposed could no doubt go ahead, if there was anyone at the FSA enthused enough to implement them, but I fear the lobby to bury the RDR, which has been fairly muted to date, will become more vociferous and will hardly be over-ridden by an FSA with an unclear mandate.

  2. Tories position on RDR
    The Tories position on RDR will come soon. They don’t want to show their hand to Labour so soon in the game as they will just clone the idea and call it their own. The FSA is a beast that knows no bounds. The banning of the FSA and its outrageous and expensive rules will be good for the UK . The UK will gain its status as the financial capital of the world when customers and industries can have clear blue sky in front of them, instead of this stinking smog that is always hanging in the air since they came into being. I hope the Tories do the right thing and ban the FSA immidistely after coming to power.

  3. Cost of RDR
    How have the FSA determined the ‘cost’ to the industry and do they really know how many advisers have yet to reach their unknown qualification. Taking advisers in isolation and accepting there will be significant cost to providers lin addition et’s assume there are 10,000 that need to be examined. The IFS QCA level 4 diploma costs £500 to sit so that’s £5m to start. The IFS state that 250 hours study is required to complete the course so assuming IFAs are fee based as required and charge say £125 per hour that is a cost to each adviser of a further £31,250 in lost time/earnings. Multiply this by 10,000 advisers and we run up a further £312,500,000. I am not a management consultant but can do simple maths so why can’t the FSA. Mark Hoban was an accountant at PWC so one assumes he can add up and whilst PWC earn significant fees directly and indirectly as a result of FSA regulation (and continue to advise Hoban for free as declared in member’s interests) lets hope they look at the wider picture and not their own pockets. .. hmm!

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