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What would an RDR compromise look like?

It has been easy for politicians and advisers to attack aspects of the retail distribution review.

But, as Treasury select committee chairman Andrew Tyrie makes clear in this week’s Money Marketing, it will be harder to push forward with a palatable solution to address the huge amount of concern in Westminster and around the country.

Political pressure on the RDR is likely to increase in the new year with the Treasury select committee consultation and a promise from back-benchers to continue to highlight the plight of a significant proportion of IFAs.

The main focus of MPs’ concern has been around the anger expressed by a large number of experienced advisers about having to get new qualifications by the end of 2012 and the damage to consumers caused by a subsequent fall in adviser numbers. This led to many calls from MPs at last week’s Parliamentary debate to allow experienced advisers to be automatically grandfathered into the new regime.

But I am not sure if as many advisers or their MPs would be in full support of grandfathering in its truest sense.

The FSA believes anti-age discrimination laws would prevent it from only offering some kind of grandfathering for advisers with a specific number of years of experience in the industry.

If the regulator is correct in this assumption then it would mean, for instance, that a level 3 bank adviser with a couple of year’s experience would also have to be grand-fathered into the new regime.

If bank advisers with limited years in the industry are able to be swept through on the coattails of IFAs with formidable levels of experience would the political consensus for this option be as strong? Maybe, maybe not.

In addressing the legitimate concerns of a certain demographic of advisers the FSA and Government must not retreat from the great strides being taken to increase professionalism within the industry.

To be successful in campaigning for changes to the RDR for experienced advisers, a robust alternative must be presented to the TSC and the regulator.

If full grandfathering is taken off the table there are a number of other solutions that can be put to MPs in the coming months. These are mostly arguments that have been fought and lost before in the meandering lobbying campaign which has surrounded the passage of the RDR from discussion paper to policy. But industry folk jaded by the years of RDR debate must remember that many MPs will be hearing these arguments for the first time.

The biggest room for manoeuvre is around the current cliff-edge deadline of the start of 2013 to ensure all staff giving advice are fully qualified up to QCF level 4.

At present the FSA is loathed to suggest there may be flexibility over the RDR deadline for fear that advisers slow the pace of their journey to QCF level 4. 

But many advisers are extremely concerned about passing all the exams by the current deadline to remain in business, with current pass rates at around 50 per cent or less, and a more gradual introduction of the new qualification regime for IFAs moving in the right direction would be welcome.

The issue of regulatory dividends, at one time seen by the FSA as an essential element of the RDR, has disappeared from discussion. A more gradual introduction of higher standards with specific regulatory dividends for firms that are fully compliant with the new rules, such as less regulatory visits, could be a viable route.

The FSA has already moved from its original position on examinations by allowing alternative assessments. But there are concerns over the price of such assessments, particularly if you fail the first time, and take-up is expected to be pretty low.

At a Money Marketing round table held last week, Aifa policy director Andrew Strange said the trade body would continue to push for alternative ways to assess competence, for instance taking greater account of experience and CPD work, rather than just exams or “pseudo exams”.

In the past professional bodies have floated the idea of a sunset clause arrangement where older advisers agree to leave the industry within a certain period but are allowed to continue to advise until their leaving date, potentially with stricter regulatory oversight. Could such an idea can be revisited?

There will be plenty of proposals for MPs to get their teeth into in the new year. But to win a lobbying campaign advisers must ensure any amendments to the RDR are pro-consumer and do not turn the clock back on the move to higher standards.

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


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There are 21 comments at the moment, we would love to hear your opinion too.

  1. “The FSA believes anti-age discrimination laws would prevent it from only offering some kind of grandfathering for advisers with a specific number of years of experience in the industry.”

    Why should this law cause the FSA any problems when they already ignore so many other laws like the statute of limitations?
    It is already unlawful under FSMA to disqualify advisers who are already qualified.
    They either call on a law to boost their own argument and if that is not possible they ignore it completely,refusing to reveal the legal basis for doing so.
    It is high time this quango was made accountable for its actions. Let us hope the TSC are able to knock some sense into them.

  2. Choice and Transparency. Let the public decide.

    Do a U turn on grandfathering but don’t allow those who are grandfathered to call themselves “Independent” or “advisers”.

    The public can then choose to go to a new adviser with Q level Qualifications or stay with the old codger they have known for 25 years.

    Choice is not a dirty word

  3. 1. Higher standards does not necessarily mean higher qualifications.
    2. Qualified advisers with little experience frighten me.
    3. Clients of existing advisers denied to continue advising after 2012 will be left in limbo.
    4. Stringent CPD must and should be implemented for all advisers and can be policed by IFA bodies like the CII.

    It’s not rocket science. There just needs to be a willingness to see existing advisers treated fairly. All advisers with streams of qualifications should not feel let down. The public can easily identify them and use them if they feel it appropriate. They should also not feel cheated because they argue they are better advisers because of the qualifications.

  4. What does not compute and do not understand is only 2% of complaints are attributed to IFAs yet we as a body can only muster a 50% or less pass mark in exams.

    Is it the exam bodies know they have a limited time to make profit out of advisers. After all avisers are Q4 qualified they then have lost the income stream bestowed upon them by the FSAs RDR dictat. Or am I being a bit cynical on the exam bodies bottom line.

  5. RDR is flawed and I do not believe it will give consumers any better advice or better value advice as a result.

    The biggest flaw however is the FSA which is now so costly, unjust, unaccountable and unfair that it’s benefits are over hyped and it is now a major cause of the many problems it is trying to solve. If the object of the exercise if to protect consumers at any cost then one can just about justify the FSA’s existance, but no business would operate such a costly ineffective system.

    Higher standards have to start from the “top” and as the FSA accept no “responsibility” or “accountability” for their mistakes it is hard to justify why others should do so.

    What proof is there that RDR is better for the consumer?

    If years of training means improved standards and quality then why is it the NHS compensation bill is budgeted this year to be £15 Billion (payable over the next 10 years) and this continues to rise?

  6. The FSA is unaccountable and makes regulations without consultation to:

    •Common Law
    •Case Law – binding and persuasive precedent
    •Natural Justice
    •The European Convention On Human Rights.

    Why on earth would they give two figs to age discrimination?

  7. What would a compromise look like?

    Well that depends upon who you are.

    If it was the FSA backing down (not that it has voted on much as yet) then it would be a bit painful but soon forgotten, in any even the CPMA is coming soon and a ‘new broom’ could announce it is droppoing the RDR because it isn’t ‘cost effective’ (not that anyone has conducted a cost benefit analysis). But of course it could just as easily announce a review of retail sales of ALL financial services products and advice, not just investments.

    Who cares? Only the IFA who is staring at the fork in the road, for the umpteenth time in twenty years or more.

  8. The FSA and the Treasury (including Mr Hoban)would be wise to listen to those who have most likely considerably more experience of the industry and what consumers want than they do.

    Failure to do so is a failure to abide by their own objectives and aims.

    Personally I don’ t think consumers have any more faith in the FSA than advisers do.

  9. Since when was the FSA in any way concerned about “level 3 bank advisers with a couple of years experience”? It certainly does very little to regulate them at the moment.

    Perhaps compromise on the FSA’s part might be seen rather less as a humiliating loss of face and rather more as living up to some of the claims it makes for itself on its website, such as engaging constructively with the industry on new regulatory initiatives.

    Wouldn’t it be so much more positive for everyone if the FSA were to lift the black cloud of oppression hanging over much of the industry, so that people could at last agree that the FSA did finally listen to and take note of the massive tide of opinion against the RDR? Surely that would be a better outcome than the current bitter war of attrition being waged. Is it really good for anyone for an industry to be at war with its regulator?

    And anyway, if all these qualifications really are going to produce better advisers and deliver better consumer outcomes, and if the public really does start to embrace the idea of paying for advice rather than just being sold a product, all the old codgers clinging doggedly to the good old ways of the good old days will simply fade away like the decrepit old dinosaurs the FSA clearly believes them to be. All their clients will defect to the NMA’s and they’ll wonder how they could have ever have stayed loyal for so long to such out of date and out of touch business models as those operated by the Chelsea Pensioners of the industry. Unless the old boys brigade really does pose a major risk to consumer health (which all the data suggests it doesn’t, but hey, never mind about that ~ never let hard facts get in the way of things), then why not let it just fade away into the sunset by natural selection? The Brave Young Turks will triumph and we’ll all live happily ever after.

    You reckon?

  10. We need a complete review of financial services regulation because the current system has become so complex and expensive that it has driven most customers and advisers away over the past 20 years. The result: we have ceased to be a nation of savers and instead become indebted.

    The RDR should become a great opportunity to reign in regulation and make it more acceptable to the consumer. My experience of most regulation is that consumers hate the red tape side of what we do.

    RDR should proceed as follows:

    * Current advisers should require a fixed number of hours of structured CPD but can continue to trade as IFA’s providing they have a good complaint history.

    * Those with the Diploma who wish to charge fees should be able to market themselves as RDR Compliant Advisers so that the public can easily recognise the added quality they offer.

    RDR Compliant Advisers should benefit from regulatory dividends such as lower FSA fees and reduced supervision.

    * All new advisers should be diploma qualified.

    * Specialist exams should be introduced to allow advisers who only practice in one area, such as long term care or pensions to have a restricted Diploma that allows them to be RDR Compliant without having to study subjects that are irrelevant to their business.

    Finally the FSA rules need to be simplified and the FSA needs to become helpful and approachable. It is a failure of the FSA that so many IFA’s have to employ compliance consultants at an additional cost to their clients. .

  11. No-one seems to discuss the subject of grandfathering as it should be applied to advisers who are already at or beyond level 4.

    With 20 years experience, thousands of hours of CPD and Diploma qualified for 15 years (plus further exams passed in recent times), is it reasonable that I should have to ‘gap-fill’ ? I think not !

  12. If the FSA were regulated by a higher authority how much compensation would they have had to pay out over the last few years I wonder?

    Keydata, Arch Cru, the banking crisis, Split Caps, Lehman, pension transfers, Northern Rock etc etc.

  13. @ Bill Wells

    It is utterly unreasonable that you should have to gap-fill. This is what happens when you have an essentially unaccountable regulator thinking only in straight lines and obsessed with keeping things “tidy”. You couldn’t make it up, could you?!

    @ Tom Scott

    At the risk of being accused of a love-in this is one of the most succinct and sensible posts I have read on the RDR.

    I expect you’ve got this in hand, Tom, but if you haven’t for any reason do be sure make a submission to the Treasury Select Committee by the 17th January deadline. It’s just this sort of analysis that will carry real weight.

    Full details on how to go about making a submission are at this link:

  14. Quite right Bill Wells- Gap-fill needs to go.

    Not only is it insulting to those of us who have decided to study and gain qualifications ourselves but it also highlights the low quality and transient nature of IFA exams.

    IMHO the CII exams are broadly worthless because they appear unable to stick to one structure for more than 18 months. Existing qualifications are continuously downgraded as they are fitted in to new syllabuses.

    It may keep the cash rolling in but where else does this happen?

    I think IFA’s are finally realising that the CII is making a mockery of them and has no interest in professional development other than the fattening of their own wallets.

  15. RDR will come in in some format or other, there will never be a complete solution. Having been in the business for more than 30 years does not make me a good adviser, neither does having the qualifications comming out of the ears of newer advisers make them good advisers. There has to be some way of control without loop holes. I for one will likley retire, but I worry that which ever way the FSA goes, the loop holes will still leave clients open to abuse. The man or woman who find the magic solution will have their future secured.

  16. Perhaps clients would like to “stay with the old codger they have known for 25 years” because the “old codgers” know what they are doing and are giving a bloody good service ! .

  17. @ John Smith – For the avoidance of doubt – I consider myself to be an old codger and would hope that I know what I am talking about and have been giving bloody good service.

    I certainly have no intention of taking Q level 4 as the exams are largely irrelevant to the work that I do and at a lower standard than the ones I took in the 1960’s and 70’s – completely ignore by the FSA of course.

  18. To me, grandfathering means this: anyone who is authorised now stays authorised. However much I don’t like that banks’ target driven, complaint riven salesmen get in on that basis, in fairness, if one is authorised now, one is authorised.

    It’s not reasonable and unfair to grandfather one sector through and not another.

    I am sure the Institute of Chartered Accountants doesn’t make its members requalify when they change the exam syllabus. Nor does the Law Society, nor the General Medical Council, nor the Bar, nor any other profession I know.

    Of course, they all have CPD, as do we, and that should be enough.

  19. I think this article is flawed because it uses the term “higher standards” which does rather accept the FSA mantra that standards are low and that if we become “professional” i.e. if we pass exams then as professionals we won’t get complaints? So let have a look at some of the so called professionals and their complaints record.

    Prospective solicitors must first possess a qualifying law degree, or if they have a non law degree but one which is a “qualifying degree” have then in addition completed a conversion course. Then all prospective solicitors must enroll with the Law Society as a student member and take a one-year course called the Legal Practice Course and then usually undertake two years’ apprenticeship, known as a training contract, This training contract was formerly an articled clerkship. So all in all six years of training and exams!

    After six years of training the complaints record for solicitors makes interesting reading!
    The Legal Complaints Service (LCS) investigates complaints about solicitors handling over 300 complaints a day:

    The Solicitors Disciplinary Tribunal’s (SDT – a division of the High Court) Annual Report to April 2007 revealed that up to 17,000 Solicitors per years were reported to the Law Society for action.

    Six years of exams didn’t stem their complaints!

    Do GPs get complaints?

    Within the UK to become any type of doctor, you must first complete a degree in medicine. This degree is extremely competitive, and high school grades e.g. AAB-AAA at A level are required, as well as good GCSEs. In addition you will be interviewed and may need to take one or more extra exams, such as UKCAT or BMAT. Studying medicine usually takes about five years and you end up with a bachelor of medicine and bachelor of surgery; this is necessary in order to start further medical training. You will then complete a two year foundation programme, doing rotations in different medical specialties. Following this, you must complete a GP registrar training scheme, and complete exams set by the Royal College of General Practitioners, which will lead to entry on the General Practice Register.
    According to a 2005 census survey there are 35,302 GPs in England. The complaints relating to GPs are collated via an aggregated annual return of the total number of complaints made against Family Health Services. For 2009/10 there were 3,515 complaints made against made against Family Health Services, which represents 9.95% of all GPs.

    Seven plus years of exams didn’t stop their complaints


    The FSA has helped to creates many missales by applying rules to previous sales – even where those sales were regulated by earlier FSA rules and were compliant at the time of the original sale. It is wrong for the FSA to site consumer complaints as the driver for higher educational standards when many of those same complaints are a result of a FSA retrospective redefinition of regulatory requirements. Consumer complaints will “never” reduce unless the FSA applies the rules and standards in place at the time of the sale and not some retrospective reconstruction.

    The FSA/FOS (not the IFA) must be made accountable and accountable to the courts by way of an appeal with regard to any complaint so that they are stopped from acting with hindsight or inverting the burden of proof, which would otherwise apply.

    Let me leave you with the words of Walter Merricks former Chief Ombudsman:

    “I think it would be unwise to count on the assumption that complaints from the retail investment world are suddenly going to go down as a result (of the RDR)”

  20. Simon as usual has come up with some important facts that should be applauded.
    I am sure the Treasury would like to see the FSA’s written evidence that supports their statement implying higher qualifications will reduce complaints.

  21. @ Simon – Excellent post. No problem with exams per se but 1) they must be relevant and 2) it must be understood that there will be no impact on ethics or complaint levels.

    In much the same way – anyone who thinks that changing to CAR or even real fees will reduce mis-selling is naive in the extreme

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