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RDR is a huge challenge, but definitely not a ‘disaster’
Reforms have gone some way to delivering a truly professional offering so far.
The RDR has been a disaster for IFAs and the financial services industry. Not my words but those of an erudite expert speaking at an industry conference last week.
We should pay attention but I beg to differ with his view. Damaging for many IFAs? Yes. Hugely challenging? Yes. An unmitigated disaster? Probably not, for reasons I will explain.
First it is worth looking at what was said. Research fellow Michael Johnson of the respected think-tank the Centre for Policy Studies was speaking at a conference organised by Sipp and retirement specialist Dentons.
His view was that the RDR had proved to be disastrous for the industry and had undermined the provision of financial advice in the UK.
Quoted by FTAdviser.com he said: “RDR has been an absolute disaster, look at the six objectives outlined by [the then FSA head] Sir Callum McCarthy at the Gleneagles conference.
“The first one is to broaden the availability of advice. The second one is to curtail the cost of advice. The RDR has achieved very little.” He then went on to suggest that the RDR had failed on nearly every level.
He believes that the only benefits have been to support professional firms and push some weaker IFAs out of business.
Talking about regulation generally he said he had “enormous sympathy for advisers”, adding that “advisers are first and foremost distributors and not advisers.” And perhaps there is the rub.
They were called “advisers” or IFAs but really they were “sellers.” This has always been the inherent contradiction in the financial advice sector in the UK: sales disguised as advice. Of course there were many dedicated and professional IFAs who looked after and advised their clients carefully but the prospect of a juicy commission on every sale undoubtedly produced a warped view of what advice was and undermined the vital fiduciary duties of any genuine adviser.
Now, I am no PR man for the RDR in all its glory and I believe it has thrown up many unexpected problems but I cannot find it within me to brand the RDR a disaster because it simply is not. Annoying, painful, blunt, contradictory, challenging, unfair? Yes to all those, but a disaster it is not, otherwise we would have no financial advice sector left and that is not what I see.
On the contrary, I see an increasingly confident and professional sector with a promising future. It is perhaps not a million miles away from what Sir Callum McCarthy envisioned at the Gleneagles conference which heralded many of the key RDR changes.
The six RDR objectives outlined by Sir Callum were as follows, along with my view of progress so far after each one:
1. “An industry that engages with consumers in a way that delivers more clarity for them on products and services.”
Progress: The box has to be ticked on this one. There is greater clarity, the consumer now knows that his adviser is working for him and not a product provider.
2. “A market which allows more consumers to have their needs and wants addressed.”
Progress: Advisers are more focused than ever on earning their fee from the client and this has made them far more client-centric. That is a major change from the “sell once and run away” approach of yesteryear.
3. “Remuneration arrangements that allow competitive forces to work in favour of consumers.”
Progress: As we have seen in the platform sector very visibly this year regulatory pressure and competition is driving down charges and costs.
4. “Standards of professionalism that inspire consumer confidence and build trust.”
Progress: Statements of Professional Standing issued by the professional bodies are now the only way for an adviser to remain in business.
5. “An industry where firms are sufficiently viable to deliver on their longer-term commitments and where they treat their customers fairly.”
Progress: A partial fail here as significant numbers of advisory firms have struggled to remain viable and that’s a bad thing, restricting the availability of advice as it does.
6. “A regulatory framework that can support delivery of all of these aspirations and which does not inhibit future innovation where this benefits consumers.”
Progress: Too early to tell. The regulatory framework is robust but fails to take into account the needs and resources of small firms. In terms of innovation we are seeing some new advice ideas being tried but it is early days.
The RDR has been a painful transition but a necessary one. It was no surprise that the FCA recently commented that there had been significant progress in efforts to reduce mis-selling.
Disaster or not, there is no going back to the pre-RDR days and I suspect many advisers will see their steadily rising fee earnings as a sign that the RDR changes may not just be good for consumers but may ultimately be positive for business and their pockets too.
Kevin O’Donnell is a financial writer and journalist