In my younger days, I worked in a factory where I was elected as shop steward. The scrabbling, positioning and apathetic behaviour within that factory were not too different from the postretail distribution world inhabited by IFAs.
Serial scheming and duplicitous management actions were all part of a normal week. Many of the workers were too caught up in their own existences to pay these actions much attention. Conversely, there were others who took umbrage at these activities and applied themselves to adjusting the status quo.
One significant management approach was the good old divide and rule tactic. This was often used during pay negotiations when one section of workers would be awarded a greater percentage increase than another section. Human nature being what it is, those awarded higher pay rises tended to vote in favour while those comparatively disadvantaged would growl and possibly vote to strike.
This, to some extent, is how the reaction to the RDR is being played out. Fee-based advisers, chartered financial planners and their professional bodies are invariably in favour of the proposals as they can see added value, profits and status for themselves. They also contend that such measures point towards growing professionalism.
By contrast, the typical small IFA howls with indignation at the thought of higher capital adequacy requirements, loss of the independent moniker and additional competition from the banks and soon to be formed direct salesforces.
What is lacking from most responses, and is also noticeably absent within the RDR proposals, despite the torrent of words, is what the proposed changes entail for consumers.
Is primary advice likely to galvanise consumers into saving and protecting? The answer must be a cautious yes, because the banks will surely not allow such a golden opportunity to pass them by. Will these consumers be better off as a result? In some instances, yes, because without some form of prompting they would not have bothered. In other instances, no, because many of them would have seen an IFA but for the bank sneaking in first.
One subject not touched on within the RDR discussion paper is the issue of trade-off. Is it considered better for stacks of simple products to be sold than to aim for higher quality but fewer purchases? Another question, purposely not framed because otherwise it would bring the whole premise of the RDR into disrepute (that is, greater disrepute), is can the established adviser framework be adjusted, thereby enabling greater sales of quality products by whole-of-market advisers?
I believe the answers are no and yes. Sacrificing quality and choice in order to increase quantity is not a move forward but rather a retrograde step. Paradoxically, the RDR gushes about the need to raise standards yet it also proposes lower suitability requirements and the design of “simple” products, which translates into reduced analysis and choice.
Easing the way for firms to make greater inroads into reducing the various financial gaps seems so obvious. However, for reasons not articulated, this has not been considered within the discussion paper.
Despite Simon Hudson’s recent claim that Tenet members will not be targeting the £25,000-£50,000 earnings band, I firmly believe that the client bases of most IFA practices fall predominantly within this sector.
Some IFAs will be tempted by tied propositions from various providers which will position them as primary advisers. It is likely that this will increase their potential commission revenue because, unlike the present situation, primary advice products will allow levels of commission on pensions previously enjoyed before RU64 was implemented. We may also see the revival of the monthly savings plan.
Those advisers who put their clients before their own financial interests will not be persuaded but, I ask again, how will the introduction of primary advice products enhance the reputation of the industry and impart benefits that are not already available within the existing adviser framework?
Greater choice means greater scope for confusion because while some consumers just might be attracted by undemanding products, they will also suffer the confusion of having additional advice layers to navigate.
Described as radical by some and not radical enough by others, I fear that such logic as exists within the RDR relates to a striving for distribution nirvana and exhibits an utter failure to understand the nature of consumer behaviour and consumer logic.
Alan Lakey is a director with Highclere Financial Services