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What price an RDR turnaround?

So, Lloyds Banking Group has followed rivals Barclays and HSBC in pulling out of mass-market tied advice.

Perhaps the most surprising thing is that it has taken so long to figure out this type of business is unsustainable given the new charging rules being introduced by the RDR.

The heavy lobbying for a more permissive simplified advice regime failed earlier this year when the FSA refused to budge on liability, qualifications and adviser charging rules in its final guidance.

I wonder though how much the views of certain people at the FSA have changed since then and whether they will change further in the months and years ahead.

New Financial Conduct Authority chief executive Martin Wheatley has had time to get his feet under the table and it is understood some senior management at the regulator have been rattled by the negative coverage of the RDR across much of the consumer media.

Instead of hopeful headlines about a new-era of beautiful, transparent advice, the focus for many personal finance journalists has been on concerns that many of their readers will be left unable to receive any form of advice. Headlines about the thousands of jobs being lost as big firms shut down their tied-advice operations will not have helped.

Coincidentally, Money Marketing today also broke news of an industry group made up of the Association of British Insurers, Association of Mortgage Intermediaries and providers such as Lloyds and JP Morgan who are looking to push a “basic advice plus” regime.

The proposal would see advisers being able to offer advice on certain products with only QCF level 3 qualification required and with commission allowed.

The group was asked to present its proposal at this year’s Gleneagles summit, the same annual event where the RDR was born a few years back. The idea bares a passing resemblance to one of the RDR advice streams originally proposed by the FSA (primary advice anyone?).

One of our columnists suggested to me this morning that this was a “Custer’s last stand moment”, a forlorn attempt by the “dinosaur brigade” to deny the inevitable.

I’m not sure the opinions of Peter Williams, who has spent most of his career pushing the need for higher professional standards, and former Aifa director Rob Sinclair can be dismissed so easily.

While problems around consumer access to advice are nothing new, it is likely the RDR will create big challenges for policymakers to deal with in the future. There may have been plenty of things wrong with the advice model of the banks, but is pushing mass-market consumers to non-advised services with no protection if things go wrong really a better answer? This is also the polar opposite of the advised-only regime the FSA plans to introduce through the mortgage market review.

Tucked away in one of Martin Wheatley’s recent speeches was a rare and welcome acknowledgement from a regulator about the need for people to save more and protect themselves and their families, and the dangers to individuals and society of not doing so. You would be hard pressed to say current regulatory policy is helping to achieve these goals. Quite the opposite.

Lee Robertson, chief executive of wealth management firm Investment Quorum, this afternoon sent out a comment to journalists that seems to sum up the feelings of many:

As an independent I don’t exactly champion the kind of advice offered by the high street banks, but I do believe in the provision of a national advice structure capable of delivering financial advice and assisting hard pressed families with their long-term planning and product purchases.”

Whilst many (bank advisers) who have gone arguably deserved to do so we do appear to be reaching a rather critical point in terms of the numbers of advisers available and able to serve the mass market.  If we take account of the numbers mentioned in the recent bank announcements – Barclays, HSBC and Coutts included – and even allowing for those who remain in the sector, it is likely that this may further reduce the number of available public facing advisers.”

As an ex-bookie I won’t be rushing to William Hill to lump my savings on a last minute RDR turnaround from the regulator. But as the effects of regulatory change become more apparent, and with European rules likely to allow leeway, I don’t think you can rule out the kind of proposal Williams and his team have put forward being taken seriously by regulators in the future.

Paul McMillan is group editor of Money Marketing- follow him on twitter here

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Comments

There are 22 comments at the moment, we would love to hear your opinion too.

  1. Surely it is no coincidence that the announcement from Lloyds banking group came on the same day that an industry group published a report endorsing simplified advice with a lower level of qualification and commission payments.

    Especially when Lloyds confirmed they would be making no compulsory redundancies.

    The cynic in me is tempted to say “no change at the banks then!!”

  2. The FSA did not Bank on this!
    When the whole RDR fiasco becomes apparent, and it will, the government will distance itself from the FSA and the FSA will blame those nasty little advisers for not playing their game.
    The losers will be joe public.

  3. I must be the only person who is not getting this. How is it bad news for IFA’s that the banking model which was consumer detrimental has been made unworkable. Clients have always paid for advice, most IFA’s told their clients clearly what the costs were.

    The issue has always been that tied advice is never good advice, it is always over priced and rarely even close to best advice and misrepresented as being Free.

    As with most of us under the old model, I would very often work extremely hard for not a lot, and then sometimes do not a lot for a lot. I welcome the opportunity to not be beaten with the TCF stick because I will not need to tolerate the type of person who thinks they can waste my time because it does not cost them anything.

  4. Given that the purpose of RDR is to wipe out the IFA sector I will not hold my breathe

  5. I’m with SteveP
    As an IFA who services the ordinary man in the street, I have always told my clients what the advice costs. Its clearly shown on the illustration and its been that way since 1996.
    Banks-Tied advice is generally not good advice as the client gets what the bank sells them. The honest IFA provides advices and identifies the product thats best for the client. I work for the client.
    Once again I’ll say that the man in the street is the looser as he cannot pay by commission. These RDR rules have been set up by the Posh boys who have no experience of life as a common man and budgeting their income to survive.
    ‘ come the revolution !

  6. Less “competition” equals more business for professional advisers so I win. But complex rules and frankly stupid regulation (such as most aspects of RDR) lead to a less advised public – shame on the FSA.

    The regulatory classes learnt nothing from stakeholder – just cause its cheap does NOT mean people will buy it.

    We now have a situation where a company with over 5 employees can still be fined for not having a stakeholder pension but as Aegon have just pulled out of the market who is left to designate?

    As auto enrollment replaces ShP in another 10/ 15 years later we’ll go round this circle again with RDR replaced with????

  7. The only dinosaurs are those that believe that advice should only be given to those that can afford to pay fees forgetting that many of their colleagues in the IFA market are providing advice to the masses who cannot afford fees but are desperate for advice. They do not care that in removing the the tied advice of banks they are also removing all of those IFAs that satisfy this market because they cannot now be remunerated by commissions and cannot charge viable fees.

    These high minded dinosaurs would have been bettter using their intellect in devising a way for their colleagues to be remunerated rather than hounding them out of the industry because they relied on commission.

    Commission, trail commission etc and its disclosure certainly needed reform but it didn’t need destroying.

  8. I have sympathy for those made redundant, those who couldn’t pass the QCF level 4, those people who wont pay a fee but as a businessman this removal of the last bank is brilliant news for me.

  9. Steve P and Hugh Jarse (nice moniker BTW)

    In normal times we would all jump for joy at LTSB withdrawing from advice services.

    However, three months before the RDR deadline it shows what many of us already know. The RDR structure is not going to work for a huge number of people.

    Think what you like of Lloyds TSB, but if with all their resources they cannot make it work, then what hope is there for the majority of IFA’s?

    This will be a complete and utter disaster. Why do you think the FSA is going. It’s simply so the FCA can say “It wasn’t us”.

  10. @Soren 10/10!

    FSA = dead men walking – yet still they persist!

  11. Hmmn. If the ‘man in the street’ can afford a tv, i pad and cable he can afford to pay for proper financial advice. If he cant afford a tv, i pad, cable then he probably has bigger problems than lack of access to financial advice.

  12. The loss of bank advice might well increase some advisers business but at what cost?

    Many of my clients were introduced to the concept of saving or insuring by a bank (or industrial branch office) and then progressed to whole of market advice. Many would not have made the quantum leap to WOM advice had they not been prepared by their bank.

    Consider also whether it is better to rid the market of bancassurance or better to clean it up so that it provides a worthwhile conduit for thos emany clients who will never approach an adviser.

  13. @Uncle Sam.

    Excellent – so you found a way to profitably provide financial advice at £300 a go. Please share it as you may have the answer to the future of retail financial services.

    I expectantly await your response.

  14. I cant understand why the pro RDR brigade persist in pushing their way as the only way – if you want to be an RDR type adviser there is nothing stopping you now or at any time in the past and many are and brag about it.

    It is very simple in my mind – if you have a successful RDR compliant business why do you worry about how anybody else makes a living – I dont.

    Markets always decide in the end we dont need RDR for that – if you RDR junkies are right the commission dinosaurs will disappear naturally (natural selection its called in nature) YOU DONT NEED RDR !!!

    Funnily enough, given a level playing field I’m not at all worried. Why are you ??

  15. Why anyone at the FSA is surprised at the negative media coverage, the tens of thousands of people being made redundant, the voluminous number of older established IFAs either selling up or leaving the industry, is beyond me. Anyone with half a brain could predict the effect of a consumer unfriendly, industry unfriendly and downright barmy set of changes on the financial services sector is beyond me.

    Maybe those who dreamed up this farcical debacle don’t possess even half a brain, for all their education, no doubt relevant (lol) qualifications to do their job as regulators, those in charge of designing and incepting this mess, a little bit of common sense, diligently applied to gauge the potential detrimental effect of such rapid and draconian changes, could have averted the drive over the cliff edge, that the regulator seems to be pushing this industry into.

  16. Hello Dears!

    Looks like the penny is finally dropping.

    When I was in the butchers last week buying a nice leg of lamb for the weekend you’d never have guessed, but the topic of conversation was the RDR!

    ‘Would you Adam and Eve it?’ I thought.

    There was the butcher, cleaver poised as if to cut a rattlesnake in half, listening to a couple of old dears debating where they’d be able to get their best advice from in the future.

    ‘Stone the bleeding crows!’ I thought, ‘if these old hens are worried about it then who else is kicking this hot potato around? ‘

    Then it happened! The cleaver dropped with a crash and it was all over. I quickly left, leg in hand (Sid likes a nice bit of leg at the weekend) to tell the girls back at the orifice that if they’re in need of some best advice they shouldn’t go to the butchers.

    Have a lovely weekend dearies!

    Larrykins xxxx

  17. Frankly I fail to see what all the fuss is about. If you can’t educate your clients that once implicit charges are soon to be explicit and payable by way of a fee then perhaps you shouldn’t be in this business. I have a very varied clientbank and for a few years now have been charging fees with no objections from my clients. After all if their car breaks down or their central heating boiler needs replacing they expect to have to pay upfront for that work to be carried so what if it isn’t labelled as a fee.

  18. Oh dear. Looks like advisers have forgotten just how much worse off clients are going to be under RDR. Tyr getting and RDR ready quote from a provider for £100000 bond, which has no initial charge, no withdrawals and based on 3 + 0.5. Then compare that to the current system of commission of 3 + 0.5. By the time the client get to the 10 year point (even at the middle growth rate) check out the differnce in values. Client is thousands of pounds better off under current system. On top of that, currently providers can offset commission payments made to advisers as business expenses for corporation tax. Under adviser charging they cant so guess what the product charges are going to increase. Who pays that? Oh yeah the poor client. You muppets who harp on about how good the RDR is are only doing so because you dont know anything about the real world and are currently operating your “RDR ready model” in the pre RDR world. It will be a very different world come Jan 1st and the sooner you all wake up to this fact plus all the other detrimental impacts the RDR will have ( lack of affordability to pay up fron for fees, Adviser cashflow problems by having to take AC on reg prem biz on the drip, 5% allowance on bonds being eaten into by AC. What about those providers who are goingto facilitate initial AC but not ongoing – one big name I discovered yesterday when I tried to do the aforementioned comparison. I woont mention who this is but they used to be Norwich Union. The list goes on and on, too numerous to mention. Just remember the RDR should actually stand for Really Detrimental Regulation because that is exactly what it will be. PS so annoyed now I cant be bothered to check my spelling so apologies in advance

  19. The Banks are no mugs. They know what they are doing.

  20. Some time ago a journalist responded to comments I made on the web (the only one ever, so hats off to him for that) about the level of bad advice. The gist of his comment was “you should see the piles of complaints we get in weekly about financial advice”. To him the complaints were the whole of his world and demonstrated just how bad things were. What appeared to pass him by was the millions of consumers who did not complain. Sit in the middle of a sewer and one could be forgiven for believing that the whole world was cr*p.
    And that is the problem with the FSA and its solutions. The only see the problems, so to them the market is a problem. Certainly there are problems and addressable problems, but the system will never ever be perfect.
    The FSA gave figures to the TSC indicating that consumers suffered a detriment of around £500m a year – or about double the fine levied on Barclays for the LIBOR fiasco. That fine will hurt Barclays – a little – but it will not do lasting damage. Given that the financial system is many times the size of Barclays £500m is a very small level of detriment. Yes it may be important to an individual, but system wise it is peanuts.
    Given that factor what level of improvement would ANY new system provide. A 50% improvement? Speak to a sociologist and they would consider that a very significant improvement in the total system. 50% improvement would save consumers £250m. Can anyone remember the annual cost of RDR specified by the FSA? £250m. Ignore for a moment the £1.5bn initial cost and one wonders how the consumer benefits?
    Why has has this farce been allowed to continue? Don’t all shout at once.
    I would suggest that a central aspect to the farce has been that the whole analysis started from the wrong basis, and that was triggered by the 1986 Act that called intermediaries “Advisers”. Advice has become the Holy Grail, or more unfortunately, the Holy Fixation. Even Advisers have become fixated into believing that they are, if not the whole of the market, then the most important part of it.
    Consumers want realistic access to products that suit their requirements and are cost effective. It is probable that they would also like to have some understanding of what they are buying. In my humble(?) opinion it is that aspect that the FSA should have been regulating. We have products on sale now that even the best Advisers will have trouble understanding and advising upon. Even when the product is understandable, is the corporate structure behind it understandable and accountable?
    What did the FSA latch onto. Advice. Advice is not the core problem. Hard and inappropriate selling was a central problem, not advice. Bad products are the problem, not advice. An industry that believes its own fairly tales is the problem – but then the FSA also believe those fairy tales, so it unsurprising that they struggle with reality.
    By misunderstanding the core problem the FSA have installed a set of regulations that will have one main beneficiary. The FSA. They believe RDR will make their life a lot easier. It is quite possible that they will even be able to provide proof of “success”, with a fall in the level of complaints. This is likely to be caused by a fall in the number of consumers able to access financial products. The percentage of complaints may not alter at all. But we will never know that because there are no figures around that measure the size of the market, and by implication, the percentage size of the problem.
    It quite easy to make headlines out of a pensioner losing out on a bad product, but if that pensioner were the only causality it would be difficult to maintain that the market overall was flawed. Lloyds come out of the FOS stats looking bad, but someone worked out that they had 2 complaints per 1,000 accounts. Even assuming that everyone has 2 accounts that makes a complaint rate of only 0.4%. Whatever you think of Lloyds that is not catastrophe level. The headlines have driven the cure, not the illness. It will be interesting to see if there is a significant fall in complaints falling the withdrawal of Lloyds from the financial advice market.
    But there may be a rise in complaints from that section of the public that find it increasing hard to access the financial product market. That is likely to be the legacy of RDR.
    Advisers are not free from censure because they too have been looking the wrong way. They have shown more interest in the preservation of their own domain than the overall health of the financial market. Advice is valuable but it is not the only option, even though so many practitioners have become so self obsessed with their own importance.
    A turn around in RDR is highly unlikely because it takes a strong person to admit a mistake. The FSA have given no indication they are strong – merely rigid.

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