The ballroom has shut

Over a year after the retail distribution review has had a chance to bed down in the industry, the key “learning’s” (my favourite ‘hot’ regu-word of the moment) in this industry are that:

Politicians just talked
Trade bodies spoke out
Lawyers spoke out
Leading industry figures spoke out
Experience counts for nothing
Foresight is a dirty word
In fact vast numbers talked about what was wrong with RDR, especially for their clients- the all powerful consumer- before it even started.

The FSA did not listen
The FCA still do not listen
Hindsight is the only game in town even after foresight advice given
MP’s have no power and accept no blame, not even Mark Hoban
Costs continue to rise,
Mass market consumers have been seriously stitched up by regulation meant to be in their interest
Nobody has the power, will or ability to stop this runaway train doing even more damage it would seem.
May I rewind you to 2010 for a ‘schadenfreude’ history lesson on the route map to statements emerging last week surrounding the success of RDR.

Despite Hector Sants stating at the FSA AGM in June 2010 that the then, very cheaply priced £430m RDR would go ahead (the cost of implementing the RDR could reach £2.6bn. This included “up to” £1.5bn in one-off costs, plus “up to” £233m in ongoing annual costs) the FSA considered scrapping the retail distribution review at a board meeting in March that year but decided to push on with plans for fear of “losing face”.

That was according to Lansons director of regulatory consulting Richard Hobbs speaking at a conference in London, who claimed that the FSA was “not particularly proud” of the review.

Many years before RDR, leading industry figures made very clear their views on what would happen, you would think that they would have been listened to and past regulatory mistakes avoided as a result :

Otto Thoresen – CEO Aegon, now with the ABI, March 2009: “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 June 2009: “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 – then with 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 November 2008: “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, the current distinction proposed by the FSA is “devoid of meaning” and “nonsense language”


Walter Merricks former Chief Ombudsman 16 July 2009: “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”

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.”

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 November 2009: 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 November 2009: “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.”

So it will come as no surprise to the above and the vast majority in the financial services industry that research fellow Michael Johnson from the Centre for Policy Studies reckons that the RDR has been an “absolute disaster”.

We should remind ourselves that the six pillars of Callum McCarthy RDR wisdom were:

• an industry that engages with consumers in a way that delivers more clarity for them on products and services;

• a market which allows more consumers to have their needs and wants addressed;

• remuneration arrangements that allow competitive forces to work in favour of consumers;

• standards of professionalism that inspire consumer confidence and build trust;

• an industry where firms are sufficiently viable to deliver on their longer-term commitments and where they treat their customers fairly; and

• a regulatory framework that can support delivery of all of these aspirations and which does not inhibit future innovation where this benefits consumers.

Only professional standards have been achieved, and even then for the average guy in the street, that really means nothing.

I think that politicians of all parties should seriously examine their role in this whole sorry affair, along with consumer groups who were so intent on seeing change for the better that they could not see or prevent it getting hijacked by self serving, money no object, regulation.

The ‘outcome’ (another favourite regu- word) from their labours has been that the industry has been decimated, businesses and jobs lost, massive amounts of cost incurred, innovation gone and above all the average guy on the street has lost access to simple financial advice because the pillars of wisdom and experience could no longer support the weight of the poorly designed regulatory roof placed upon them.

Michael Johnson’s ‘absolute disaster’ seems to sum much of RDR up quite perfectly. Where we go from here, and whether there is any chance of those in power learning from their mistakes is, unfortunately, a question to which I’m just not sure there is an absolute answer.

The late satirist Peter Cook might have conversed with Hector Sants or now even Martin Wheatley on the subject as follows “I said to him, with all the dignity I could muster, is this any way to run a ******* ballroom?

I must confess that I wrote this with a heavy heart. Advisers have seen, like me, five regulators in the last twenty-five years- NASDIM, FIMBRA, PIA, FSA and now the arrival of the FCA.

Yes, an average lifetime of five years per regulator and despite the huge costs they all have incurred on those they regulate, they never, ever seem to get it right. And the next regulator is coming down the tracks from Euro-land soon I am sure.

There is a big problem for mass-market consumers with RDR despite denials by some.

Until the regulator agrees there is a problem, the big question is around how can we find a solution?

What would that solution be, someone please tell me? 

Stupid is as stupid does

“Pensioners should be trusted to use their retirement savings however they want”.

I must confess to being a little annoyed at what many saw as a condescending remark from pensions minister Steve Webb.

This was from the same vein of political wisdom that stretches back to John Gummer, now Lord Debben (yes, the APFA chairman) and his ‘beef burger’ moment.

There is no doubt that this creates the opportunity for more people to make better informed retirement choice and it is also an opportunity for financial advisers to demonstrate value to potential annuitants.

But I do not see this as being the intention.

Firstly, regulation today is based it would seem, upon consumers being protected at all costs from themselves, irrespective of advice given, irrespective of changed circumstances, irrespective of changes goals or aspirations.

In light of this it seems a complete about turn (from a government that mandated the FCA) to now suggest that “Pensioners should be trusted to use their retirement savings however they want”.

This is not about a generous and thoughtful government empowering the ‘silver surfers. This is a tax grab, a way of the government ensuring that the aged consumer, previously known as a vulnerable consumer, can now ensure that an advance on IHT can be made before they die to reduce the national debt and provide funding for third world aid programmes and more unmandated social engineering and politically correct projects before the next election.

Based on the understanding that after the 25% tax-free cash withdrawal the balance, when taken, will be subject to marginal taxation, pots big and small could find themselves being taxed on that hastily drawn down balance if they decide to take the money and run rather than take independent advice and hold fire.

We should also be in no doubt that the meager savings of many or the substantial savings of the elderly generation in whatever form have been subject to vicious fiscal attack from governments over the last 20 years or so.

Pension funds raided by Gordon Brown, caps put on the size of pension pots, tax then put on top at the highest rate, tax relief limits reduced and so on.

At the same time, governments have then decided that the villains of the piece are financial institutions and the advisory community for charging too much, being unfair, not being flexible…. the list I guess is endless.

Governments have a difficult time I balancing the books, especially in a coalition government. After all as Donald Rumsfeld once said “If you try to please everybody, somebody’s not going to like it.”

In this case what I am getting concerned about is that this industry is seen as the ‘whipping boy’ when in reality much of the problems that savers, pensioners and taxpayers endure are as a direct result of poor government, poor regulation and distinct lack of political foresight and common sense.

Bubba may know everything there is to know about the “shrimpin’ business”, but Steve Webb knows nothing about anything it would seem.

Graduates & Financial Advisers

I was having a very interesting conversation last week about graduate training programs for those wishing to enter the financial advice profession.

As an industry, we have to encourage new entrants-despite the obstacles that regulation and associated costs throw up.

I understand that with one government sponsored scheme nearly a thousand applied to the scheme yet over half fall at the first hurdle, and that is because in a large part they seem unable to coherently read and write.

Now we should be aware that the individuals applying for this aided scheme are graduates!

They have somehow managed to access university education without some very basic and essential educational and life skills, only to exit with a degree; but not the ability to read, write, and matriculate in a consistent way and to a standard that would be acceptable to an employer looking to recruit a graduate entrant.

Things get worse it would seem, as those who are successful in getting on this government-aided scheme continue to drop out along the way. This has reached such an extent that by the end of the programme, the final number of qualified graduates available to put out to firms on a three-month internship has reduced from a starting point of 1,000 to just over 100.

The future of financial services lies in firms being able to recruit good quality, intelligent individuals with the ability to communicate well.

But where are they?

We would be interested in hearing from firms who have tried to recruit new entrants, regarding their experience and the outcome

Do tell us:

How many have you rejected to get the right person?

Can they read and write to your expected standards?

Are they numerically able to do the job?

Are they reliable?

Have interpersonal and social skills?

And most importantly, are they willing to learn?

It is simply crazy for the UK education system to allow individuals to enter university if they are not able to read or write, add and subtract to at least a minimum standard.

In the USA recent research has shown that becoming a financial adviser was ranked as the 5th best profession to aspire to by and 6th byYahoo Finance.

There may be some good reasons why the best graduates are not attracted, let’s hope that in putting together this information from various businesses’ experiences of bringing graduate trainees on board, we can understand more and begin to correct the problems in the education and training system. Only then will the push for new blood into the industry have a chance at being successful.