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RDR Is Working? Oh No It Isn’t…

Is RDR Working Well? Derek Bradley, CEO of Panacea Adviser, Says the FCA Still Has a Long Way to Go

According to our own research, the RDR impacts aren’t quite over yet.

At Panacea Adviser, we have been running a couple of snapshot polls in the last two months, one based upon the impact of trail removal on businesses and the other on adviser sentiment for 2014.

Glass Half Full? We Wish…

Responses for the trail poll, as you’ll see, have so far numbered nearly 1,800, and the more recent mood poll had already attracted another 1,300 by the second week of January. Not exactly a small sample, then. And the outcomes so far are, to put it mildly, striking. But judge for yourself:

Yes, there’s a lot troubling advisers at the moment. Trail removal in particular is a serious issue that should not be underestimated. It is all too clear that, looking beyond 2016, there needs to be a definitive statement on trail from the FCA.

Oops, Anomaly

2014 prospects for the smaller adviser are very worrying too. Why? Well it may be around increasing regulatory cost, reporting burden and a lack of clarity. And now we hear that the FCA has said there is an ‘anomaly’ in the way the fees for A13 block interacted with A12. What is actually meant by the word ‘anomaly’, when used by the FCA, is that most A13 group advisers have been overcharged by around £118m over the past five years.

Will they get it back? Let’s see – because I suspect that if this relates to five years, the money will have already been spent, and any refund will be balanced by higher fees to recoup the refund. And who will get it back? Will those firms who are no longer trading be compensated? Could it be that it was the overcharging which put them out of business in the first place?

Does the FCA Want Fewer Advisers?

As for clients, well the mass-market consumers are the collateral damage left behind by the RDR.

In giving evidence to the Treasury Select Committee a couple of years ago, the yet-to-be knighted Hector Sants said, “If the reduction in advisers was not acceptable, the reforms would not be going ahead”.

To top this, it was reported that Lord Turner reckoned that a “reduction could be good news for consumers who may see a reduction in administrative costs”.

Turner went on to add that: “Some exit of “capacity” from the industry which is therefore an exit of administrative cost may be in the interest of consumers, it is a cost which is being absorbed.”

What he actually meant was business closures and job losses – certainly not FSA or FCA job losses. We are now seeing the results of ‘survival segmentation’ manifesting itself in consumer disenfranchisement – the unintended but sadly expected outcome of RDR. If only the regulator and politicians had listened.

Lord Turner could not understand that advisers of all persuasions – tied, bank, restricted, independent – that the then FSA regulated, (and now the FCA) are people, not “capacity” – and that their clients were often the mass-market consumer!!

Doublespeak

Was this use of words like “capacity” a nicer way to describe casualties of the unintended or perhaps intended consequences of regulation? Is “some exit of capacity” the regulatory equivalent of “friendly fire” instead of being "shot dead"? And furthermore, was this the same Lord Turner who once said that the FSA fee increases were a one-off and the industry will not face further rises for the supervisory enhancement programme in the future?

So, is the RDR all over? Unfortunately not. And I fear that the consequences could be ongoing for some time yet.

 

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