Derek Bradley, CEO of Panacea Adviser, fumes about, oooh, just about everything……
Over a year after the retail distribution review (RDR) has had a chance to bed down in the industry, the key evergreen learnings which sum up the regulatory action are:
- Politicians just talked
- Trade bodies spoke out
- Lawyers spoke out
- Leading industry figures spoke out
- Experience counts for nothing
- Foresight is a dirty word
In fact, vast numbers talked about what was wrong with the RDR, even for a consumer, well before it even started.
- The FSA did not listen
- The FCA still do not listen
- Hindsight is the only game in town – even after foresight advice given
- MPs have no power and accept no blame
- Costs continue to rise, consumers have been seriously stitched up by regulation meant to be in their interest and importantly nobody has the power, will or ability to stop this runaway train doing even more damage.
Despite Hector Sants stating at the FSA AGM in June 2010 that the then, very cheaply priced £430m RDR would go ahead, the FSA still considered scrapping the retail distribution review at a board meeting in March that year. However, they decided to push on with plans for fear of "losing face". That was according to Lansons director of regulatory consulting, Richard Hobbs, speaking at a conference in London, who claimed that the FSA was "not particularly proud" of the review.
Many years before the RDR, leading industry figures made very clear their views on what would happen. You would think (and hope) that they would have been listened to and past regulatory mistakes avoided as a result. Clearly this has not been the case:
Otto Thoresen – CEO Aegon, now with the ABI, March 2009: "The RDR is only helping wealthy customers".
AXA, April 2009: "We will lobby the FSA to make sure the RDR does not mean less are able to access advice".
David Cox – Suuqea, March 2009: "Two million clients could be left without an IFA after RDR – 40% could leave the industry".
Institute of Financial Services, June 2009: "RDR will impair financial advice before improving it".
Alasdair Buchanan – Scottish Life, November 2009: "Sales advice is a real cop out and extremely confusing to investors".
Stephen Gay – then with Aviva, June 2009: "The regulator has failed to consider the danger of adviser charging limiting access to advice for those on lower incomes".
Lord Lipsey, November 2008: "Consumers in the middle (not high net worth or money guidance fodder) to be sold products by banks under the contradiction that is sales advice".
Walter Merricks – former Chief Ombudsman, July 2009: "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)".
Deutsch Bank report, August 2009: "There has been industry talk of 30% or even 50% of IFAs exiting the industry post 2012, which is not impossible".
Paul Selly – HBOS, December 2010: "Bancassurers set to benefit".
Richard Howells – Director Zurich Life, June 2009: "The big question mark is still around what benefit it will have for the ultimate consumer. I am still not convinced that all of these changes, when you sit down with a consumer and explain them, actually give rise to a consumer benefit that I can really hang my hat on."
Martin Lewis – Money Saving Expert, June 2009: "There's a worrying possibility that the FSA is about to kill off independent financial advice in the UK for all but the wealthy. I do hope I'm wrong. I'm not convinced most people will want to pay for advice. The commission route has the advantage that you don't pay a fee each and every time you want information; you can go without the worry of laying out cash."
Janet Walford OBE – Editor Money Management, September 2009: "I am not paranoid enough to believe that the FSA has a hidden agenda to do away with small IFAs, but the law of unintended consequences may well mean that this will be the result. This is especially the case when set alongside the myriad of other proposals that are costing some £430 million to set up, with ongoing fees of £40 million pa thereafter, a mind boggling amount of cash”.
Peter Hamilton – barrister, Source: Money Management, October 2009, Scrapping the FSA by Marie Jennings MBE: "The Financial Services and Markets Act does not permit the FSA to cancel an authorisation simply because the FSA has changed its views on what the appropriate qualifications should be…. It is one thing to impose new rules for new entrants to the IFA profession, it is quite another thing to disqualify someone who is already qualified."
David Hazelton – Tax Incentivised Savings Association (TISA), October 2009: “The RDR could be detrimental to consumers both in terms of higher product charges and an increase in the cost of advice, warns the Tax Incentivised Savings Association (TISA). Implementation costs for the RDR are being "seriously underestimated" and product charges will consequently have to be raised.”
David Golder – Bankhall managing director, November 2009: "We say write to the regulator, write to your MP. Do not let the FSA get away with some of the things that will lead to the widespread decimation of our industry."
Robert Kerr – head of retail distribution development at Scottish Widows, November 2009 says: “The RDR could have the unintended consequence of "disenfranchising" the majority of consumers from financial advice. Our key concern is the RDR proposals will act to drive advice upmarket, with financial advice becoming the preserve of the wealthy leaving mass-market consumers un-served."
Nigel Waterson when Shadow pensions minister, November 2009: "While no-one can object to raising the standards of training and competence, should an emphasis on exams take precedence over on-the-job training and experience? Is the 2012 implementation date practicable given the extra qualifications and changes in systems that will be required to be in place?”
Richard Hobbs – director Lansons Regulatory Consulting, July 2010: "I have to say, it (RDR) only just survived an executive committee meeting in March 2010 at the FSA. The FSA are not particularly proud of the RDR but it is a question of losing face, so I think they will carry on."
So it should come as no surprise to the above and the vast majority in the financial services industry that research fellow Michael Johnson from the Centre for Policy Studies reckons that the RDR has been an “absolute disaster”.
We should remind ourselves that the six pillars of Callum McCarthy RDR wisdom were:
- • an industry that engages with consumers in a way that delivers more clarity for them on products and services;
- • a market which allows more consumers to have their needs and wants addressed;
- • remuneration arrangements that allow competitive forces to work in favour of consumers;
- • standards of professionalism that inspire consumer confidence and build trust;
- • an industry where firms are sufficiently viable to deliver on their longer-term commitments and where they treat their customers fairly; and
- • a regulatory framework that can support delivery of all of these aspirations and which does not inhibit future innovation where this benefits consumers.
Only professional standards have been achieved and even then, for the average guy in the street, that really means nothing.
I think that politicians of all parties should seriously examine their role in this whole sorry affair, along with consumer groups who were so intent on seeing change for the better that they could not see or prevent it getting hijacked by self serving, money no object, regulation.
The outcome from their labours has been that the industry has been decimated, businesses and jobs lost, massive amounts of cost incurred and above all, the average guy on the street has lost access to simple financial advice because the pillars of wisdom and experience could no longer support the weight of the poorly designed regulatory roof placed upon them.
Michael Johnson’s ‘absolute disaster’ seems to sum it up quite perfectly. Where we go from here, and whether there is any chance of those in power learning from their mistakes is, unfortunately, a question to which I’m just not sure there is an absolute answer.