19th July 2010

Is this any way to run a ballroom?

Despite Hector Sants stating at the FSA AGM in June that the �£430m RDR would go ahead, the FSA considered scrapping the retail distribution review at a board meeting in March but decided to push on with plans for fear of "losing face". That is according to Lansons director of regulatory consulting Richard Hobbs in a report by Natalie Holt in last weeks MM.

Mr. Hobbs, who was speaking at a conference in London, claimed that the FSA was "not particularly proud" of the review. What???? That is after a �£430m spend!!! Despite this, he told those attending the conference that he expected that the RDR would continue.

He is quoted in MM as saying that: "As for the RDR, I guess that will continue to completion. There are a great many rumours around the market that the RDR is to be pulled - I think that is completely untrue. I might have to eat my words but my view is it will carry on. I have to say, it only just survived an executive committee meeting in March 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." The FSA when approached about this "declined to comment".

Summary minutes of the March 25th meeting indicated that the RDR was discussed but what is the bigger picture? Is Richard Hobbs a "Whistleblower"? What does he know that the FSA declined to comment upon?

If, as he says, "it only just survived" and that the FSA did not want to lose face, is it not appropriate that the government, the regulator and the industry take a "time out" to "reflect" on what a spend of �£430m and a further �£40m pa thereafter was intended to achieve and has the money been well spent?

William Congreve in his comedy of manners The Old Batchelour, 1693 originated this verse- "Thus grief still treads upon the heels of pleasure: Married in haste, we may repent at leisure". Regulation should not be pursued at any cost and in such a way, applied like a tattoo only to be regretted when the effect of the alcoholic induced stupor that fuelled its creation has gone away.

The RDR, despite it's many good points, could have the unintended consequence of "disenfranchising" the majority of consumers from financial advice and has come in for much criticism within the industry for this. There is no doubting that it is a great opportunity for a number of interested parties, some who will no doubt be ready to capitalise on the opportunity presented to those that can best afford it- large Wealth Management firms, consolidators and long established fee based only IFA firms. It is clear that the regulator has chosen to ignore the very clear, wise advice given by many leading industry figures who have seen the effect of badly thought out regulatory changes of direction before, remember NASDIM, FIMBRA, PIA?

So why is it that all the following from the industry list of the great and the good are not being listened to? *

Otto Thoresen - CEO Aegon: "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: "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 - 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: "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: "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: "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. What I find most galling though is that bank-based advisers - those primarily responsible for PPI miss-selling, endowment miss-selling, investment miss-selling and generally poor advice all round are still to be allowed to be remunerated based on the number of sales."

Janet Walford OBE, Editor Money Management Sept 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 Oct 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 of Tax Incentivised Savings Association (TISA) 30/10/09: 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.

Bankhall managing director David Golder 03/11/09: "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 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: "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 16/07/10: "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."

Here is a link to the SUMMARY MINUTES OF THE FSA BOARD MEETING HELD ON 25 MARCH 2010 - there is very little mention of RDR, but this is only a summary, full details have been requested but at the time of writing have not been made available.

The late satirist Peter Cook might have reported a conversation with Hector Sants on the subject as follows "I said to him, with all the dignity I could muster, is this any way to run a ******* ballroom?"

* Thanks to IFAs Alan Lakey and Simon Mansell for the quote research.

Panacea Comment