31st January 2014
Revisting the highland clearances
Please forgive me for seeing some similarities between the post RDR adviser number fallout, the pre RDR divisions of the anti and pro RDR lobbies, the so called at the time silence of networks, AIFA (APFA) and the Highland Clearances.
For those who do not have a knowledge of the clearances, they were forced displacements of the population of the Scottish Highlands during the 18th and 19th centuries that led to mass emigration to the Scottish Lowlands, coast and the North American colonies.
The clearances were part of a process of agricultural change throughout the UK but were particularly notorious due to the late timing, the lack of legal protection for year-by-year tenants under Scottish law, and the abruptness of the change from the traditional clan system and the brutality of many evictions.
The reality of the highland clearances can still be seen today in the remains of burned out blackened houses, frequently comprising of whole villages and settlements standing as a testament to the greed of the few in hurting the many.
It is worth remembering, too, that while the rest of Scotland was permitting the expulsion of it’s Highland people, it’s ruling classes were forming the romantic attachment to kilt and tartan that scarcely compensates for the disappearance of a Highland race to which such things were once a commonplace reality.
The chiefs remain, in Edinburgh and London, but the people are gone.
Where are we now with advisory firms after the RDR clearances? Is there a romantic attachment to the past by those left standing?
Well according to figures from our good friends at Equifax Touchstone, in December 2012 the number of active firms excluding bank advisers it was 5,256.
By mid 2013, reduction in ‘capacity’ continued, the number of firms excluding bank advisers it was 5,079.
By December 2013 the number of firms excluding bank advisers was 5,063
So we now know that advisers operating on the first day of the RDR had reduced by 20 per cent compared to December 2011 figures. And despite the regulator reckoning numbers are going up (because many advisers that were not RDR ready at the end of 2012 became ‘ready’ this year) the reality is that for 2013 we have seen a further reduction of nearly 4% in firms.
As with all data it is in ‘Frank Carson’ speak the ”way I tell ‘em’ but these numbers do cast an element of doubt on the message the regulator is trying to send out about numbers going up.
We also know that the loss of the banks was, you guessed it, an unexpected consequence of the RDR for the FCA, with we understand, Martin Wheatley being annoyed that the banks pulled out so late in the day. Given what we now know about banks, financial advice, fines and targets why would they put themselves, never mind their customers, back in to danger with a tougher and more inquisitive regulatory regime.
With all this in mind, it was with some interest that I re-read an article from 23 November 2010 reporting that (according to the now ‘Sir’ Hector Sants) “losing up to 20 per cent of IFAs was an acceptable cost in order to deliver the specific improvements brought in by the RDR, according to the FSA”.
In giving his evidence to the Treasury select committee, 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”.
Really??????
He said: “Some exit of “capacity” from the industry which is therefore an exit of administrative cost may be in the interest of consumers, it a cost which is being absorbed.”
What he actually meant was job losses, certainly not FSA or FCA job losses. And along with the loss of livelihood for advisers and providers support staff and paraplanners, 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 their clients were often the mass-market consumer!!
Was this ‘new-speak’ 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" by your own side or “rendition” instead of “kidnapping” or “water boarding” instead of torture?
By the way, was this the same Lord Turner who once said that FSA fee increases were a one-off and the industry will not face further rises for the supervisory enhancement program in the future?
Speaking at a previous FSA annual public meeting, Turner also said: "The Supervisory Enhancement Program involves investment, which means higher cost, which means higher fees. The executive and the Board of the FSA are very focused on ensuring that, after a one off increase in costs to achieve this investment, the industry will not face relentless rises in future. But we cannot avoid the one off increase: in the past, in relation to our highest impact firms, we were trying to do supervision on the cheap."
Those advisers who have survived RDR have built, grown and now transitioned great businesses. This has taken many challenging years, serving their clients very well to see this happen
They carry a heavy burden of responsibility for what they do (unlike it would appear Lord Turner or the now highly stressed out ‘Sir’ Hector) and often into retirement (despite the failure to recognise the longstop continued by the FCA and FOS) and yes; they too pay a considerable proportion of their income in regulatory fees.
These advisers have feelings, aspirations and a desire to operate a compliant and successful business. They should be treated as fairly as they are expected to treat their customers by the FCA.
Will Martin Wheatley give this thought consideration, because right now all the past pontification on fees looks to have been disingenuous at best or at worse, one of the biggest frauds committed on an entrapped group of mainly small businesses no doubt facing more fee hikes next year?
Another unintended consequence of RDR; fewer firms having to pay more because there are fewer firms despite the logic that fewer firms to supervise should cost less?
And then 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 had been overcharged by around £118m over the past five years.
By the way, was this the same cost conscious Lord Turner, along with others, who did not do ‘cheap’ when exceeding FSA Handbook expenses limits for hotel expenditure (£150 per night in UK, £170 in Europe and £250 in the US) by spending £811.72 on 2 nights at the Four Seasons Hotel Washington, USA?
You should note by the way that the above claims do not appear to include subsistence and travel costs.
More caviar anyone?
If you feel like a break to get over the shock of all this, look up the latest "get away" rates at these FSA preferred hotels. Things may be, we can only hope, different with the FCA?
We have asked and await a reply.
Comments (2)
However as always some legitimate points are spoilt by over dramatisation and some less than robust arguments. Taking the reduction of adviser firms as an example. This implies that all firms were good and worthy, which we all know is some way from the reality. This is precisely the reason that the RDR was incepted to weed out the cowboys, the less able and to raise standards and to get rid of the opaqueness and sharp practices that were far too rife. That the banks took the biggest hit points to the success, not the failure of RDR.
No one has a given right to be in business and our sector is no more or less privileged than others. There used to be a vibrant British Motor industry. We had a very large manufacturing base. Far more were employed in production than in services. Things change progress is not always for the better, but we have to live with it. I would far rather see a vibrant manufacturing base than a financial services one, but not even I can turn back the clock.
And there we have it. The author of this piece is a latter day King Canute. Scottish crofters were a romantic notion, but they lived in dire conditions in abject poverty. The clearances were inhumane, but in the long run it was progress. Their lifestyle was unsustainable and coming to an end anyway. Industry took over and many of the dispossessed found their way to the shipbuilders of the Clyde and the Glasgow factories.
Harry Katz 05/02/2014 09:23
The article itself is well written and makes reference to historic mistakes to highlight current incompetences. Melodramatic? Perhaps, but a useful and interesting device nonetheless. As IFAs (present or former) we will know hot to use and abuse statistics. Regardless of the rhetoric, the number of advisers is falling and will continue to fall since RDR. Quite a simple fact, yet belying claims of the FCA.
Personally I was was under the impression that the objective of MIBOC, ASDIMS, LIA, FIMBRA, PIA, FSA, FOS, FSCS was, to quote Harry "to weed out the cowboys, the less able and to raise standards and to get rid of the opaqueness and sharp practices that were far too rife."
Was RDR then, an admission of failure of regulation since the mid 1980's?
I would strongly suggest that by 2010 the vast majority of dubious IFAs or 'financial advisers' had been culled from this industry already, with the possible exception of the very largest, direct salesforces and the banks. RDR was an unnecessary step too far and the damage is yet to be seen.
RDR grew from the need for a disastrous regulator to be seen to be taking strong action against financial institutions. It was neither necessary, nor of any benefit to the general public, or indeed the industry. By picking on the easy target of IFAs the FSA appeared to be active whilst the financial malpractices and inherent dishonesty of the banks and many of their employees continued unabated.
Grosvenor 05/02/2014 10:19
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