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Scrap RDR (Financial Services Sector)

Comment 8th July 2010

I would request the scrapping of RDR within the Financial Services industry, as I believe it to be grossly detrimental to the best interests of both the consumer and the industry’s practitioners.

Firstly, the requirement for even higher professional qualifications over and above an already reasonably high standard will not, as has otherwise been suggested by the FSA, restore the public’s faith in our industry, for the public by and large is not aware of the level of our professional qualifications as they already stand. Furthermore, it is the banking arm of the financial services industry in which the public have little faith, and that was the case even before the advent of the credit-crunch.

Unfortunately, there have always been ‘cowboys’ in the industry, but undergoing the very costly and stressful process of extra studying and the sitting of further examinations will serve to establish even more highly-qualified ‘cowboys’ who will proceed to ‘rip-off’ clients even more efficiently than they were already doing. But sadly, it will also serve to drive out of the industry hundreds, if not thousands of older financial advisers who have delivered stirling-service to both their clients and the industry for many years, and who would otherwise have a few good years left in them yet. Why should this be? Quite simply, they will find it difficult to cope with the stress of undergoing intensive studying in some subject matters which the FSA in its infinite wisdom believes that we should all have in-depth knowledge of, but which in the real world, we will not have occasion to discuss in any depth with our clients, for we are not accountants or tax-advisers, nor did we ever intend to be. To then have to sit through examinations covering such areas will simply be too much and in some instances, a threat to one’s health. This will cause a loss of tax revenue from those who are thus forced to leave the industry, for without the extra qualifications they will no longer be permitted to practice, and furthermore, it may well add to the NHS bill and unemployment benefit costs.

Secondly, the proposed abolition of remuneration by way of commission payments and the enforced introduction of fee-charging will serve to drive away clients and prospective clients in their droves, for many of them will not be prepared to pay ‘fees’ for financial advice.

High-net-worth clients may already go to fee-charging IFAs (and accordingly expect to pay fees for an ongoing service, whether an actual business transaction takes place or not). However, most people understand that the majority of us are remunerated by way of commission and they also understand that they are effectively paying by way of the commission being built into the investment product’s charging structure (transparently shown within the product’s Key Facts Illustration). They clearly accept this and would not expect us to work for nothing.

However, when mentioning the word “fees” to such clients, a completely different perception invades their minds, resulting in a tendency to think about whether or not there is a means available to them whereby they can secure this or that product directly from the provider without having to pay fees for advice. This tendency has been heightened by way of the arrival of the largely unregulated ‘compare.com’ culture, where people have become very price-sensitive and ignored the fact that they may well be purchasing either an inferior or inappropriate product.

In other words, these are the very people who NEED financial advice, but who will feel they can either not afford to pay for it or will simply not be prepared to pay for it by way of ‘fees’. How on earth is this piece of legislation designed to be in the best interests of consumers?

All that is required and all that ever was required, was for the FSA to ‘police’ the industry effectively, by getting out there at the sharp end and working with the industry, as opposed to sitting in their little ivory towers concocting ways in which to impede the industry. Furthermore, where there has been and continues to be commission-bias between products as promoted by the product-providers, that should be easy enough to legislate for and overcome, and certainly a lot less costly to one and all than RDR and all its implications.

I always said, “Who is regulating the regulator”? The FSA are the ones who have let down the consumer, by primarily not policing the banks and other lending institutions, and the fact is that the consumer has no faith in the banks. They may not have a particularly high-opinion of the Insurance institutions, but I do not believe that their estimation of the insurance industry has diminished any further as a result of the credit crunch. However, by introducing an enforced regime of fee-charging into the industry, the consumer may well begin to think that having been fleeced by the banks they are now going to be subjected to a fleecing by the insurance industry. And all of this is supposed to be in the best interests of the consumer.

Scrap RDR and scrap the FSA and let us have a regulatory body (with teeth) that actually understands our industry and can work with us as opposed to working against us.    

Why does this matter?

  • It is in the interests of TCF (Treating Customers Fairly)
  • It is in the interests of TAF (Treating Advisers Fairly)
  • It is in the interests of re-establishing a 'savings' culture (properly advised) to replace the irresponsible 'credit' culture (badly-advised, if advised at all)
  • It is in the interests of retaining 'quality' people and 'highly-experienced' people within the industry as opposed to effectively driving many of them out. The number of such people within the industry has been alarmingly decimated in recent years.
  • It is in the interests of encouraging people to secure proper financial advice from a properly 'policed' industry in an endeavour to avoid very costly mistakes that they may otherwise subject themselves to.
  • It is in the interests of establishing and maintaining a regulatory body that understands the industry and is able to work with the industry in a constructive and enabling manner as opposed to an obstructive and strangulating manner.
  • It is in the interests of the government being able to demonstrate that it listens, takes note and actually does something about something than needs to have something done about it.
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