Post RDR advice costs. “What’s it all about Alfie”?


I read a comment earlier in the week in relation to this headline “Aifa and Deloitte disagree on independent advice cost. Independent advice is likely to cost more than restricted recommendations, Deloitte warns, while Aifa says charging will be unaffected”.

It said I would have thought that it makes no difference what sort of advice is provided because it will all cost the same in time and of course the cost of regulation just keeps increasing while the failures increase in size. What’s it all about Alfie?? 
Strangulation by regulation because supervision has failed?

And I guess the question must be what the unintended impact of regulation has done and it will do to the cost of advice and the relationship impact upon the Consumer?

Deloitte’s say that IFA firm compliance costs will no doubt increase due to the need to ensure that advice meets the now less than “clear English” FSA definition of independent status.

These are of course all part of the costs that are borne by firms in doing business, but let there be no doubt, these will be paid for by the consumer.

Or more accurately, it is expected the consumer will pay, but will they want to?

Do they see value? Well that is the challenge for firms, finding a way to demonstrate value in their proposition.

Do they see the purpose and benefits of independent advice or will consumers care??

Will restricted advice offer lower costs to consumers?

AIFA see that firms charging will not be affected by the model a firm adopts, I am not sure I see this is possible.

It is understood that certain platforms may offer different remuneration packages depending on the status of the adviser they are dealing with. Does this mean a restricted firm will have more or less attractive options than the independent firm?

What of P.I. costs in all this expense?

These are rising and will rise more. Why? Well a contraction in the market does not help and although P.I. is mandatory for firms it is a fact that P.I insurers are hit hard too due to the oft-denied application of retro regulation on IFAs.

Having read the FSA RDR guidance on Independent and Restricted advice one wonders what the point of P.I is any more.

Section 2.15 of the guidance states:

“If a firm cannot or will not advise on a particular type of retail investment product, and that product could potentially meet the investment needs and objectives of its new and existing clients, then its advice will not meet the standard for independent advice.

In other words, the justification for a firm excluding types of retail investment products from its range needs to be centered on the client. As an example, the fact that a firm’s professional indemnity insurance policy specifically excludes certain products would not be a valid reason for never advising on such products”.

P.I is really redundant TODAY as a suitable insurance cover for many adviser firms because the excesses are so high and often matched with many restrictions. It is now a one shot stop gap disaster cover for smaller firms. Link this to the possibility of multiple claims and a firm will be see no alternative but to shut up shop as it simply cannot afford the claims, an attractive option for limited liability firms.

And where do the claims go- the FSCS of course.

Maybe time for a re-think, P.I. could be abolished and the premiums go to create an industry self-insured pool within the FSCS along with a Consumer levy?

The Consumer always pays in the end but at least this thought would demonstrate greater consumer transparency and move it away from the cost of advice and place it firmly into the cost of protection where it really should be.

As the song goes What’s it all about, Alfie?
Is it just for the moment we live?


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