Who is actually responsible for the RDR mass-market advice mess?

It was Sir Callum McCarthy’s infamous ‘Gleneagles speech in September 2006’ which laid the groundwork for the overhaul of the UK financial services retail distribution business model, something now referred to as the ‘RDR’.

Almost ten years on is a great time to reflect on the six pillars of Callum McCarthy’s RDR wisdom:

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

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

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

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

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

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

In laying out his vision, Sir Callum reckoned the industry would require a “collective shift away from product and provider bias, toward an incentivised and regulated distribution system”.

What has been achieved then?

Only the professional standards aspect has been a success, and even then for the average consumer in the street, that really means nothing.

Job losses, strangely something not mentioned in the ‘6 pillars’?

That trend continues for IFA firms. According to the latest Equifax Touchstone adviser movements in the 2014 year were as follows: 5,979 moved firm, 6,777 became no longer authorised and 4,576 became authorised.

A net adviser loss of some 2,201, 2015 results will be out soon.

Fears that the industry would be completely decimated still remain especially when looking at the tens of thousands of job losses in ‘provider world’ post RDR

Panacea warned back in 2010 that the RDR, despite it’s many good points, could have the unintended consequence of “disenfranchising” the majority of consumers from access to financial advice.

There was no doubting that the RDR was a great commercial opportunity for a number of interested parties, some who capitalised on it greatly – large Wealth Management firms, consolidators and long established fee based only IFA firms.

But no opportunity was created it would seem for the mass-market consumer, the very people that RDR was meant to help!

It was clear from as early as 2009 that the regulator had 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, FSA and even the OFT?

So when the wires started buzzing last week with Tracey’s ‘heads up’ on a navigational shift. The Treasury and FCA, she said, “want to look at is what is the best way of delivering advice and guidance across the market”. Then delivering the ‘killer blow of  “so I wouldn’t rule out that there may be some element of commission, but we are not going to reverse the RDR” I headed to a dark room for an hour and undertook some deep breathing exercises.

Hector Sants stated at the FSA AGM in June 2010 that the RDR cost would be £430m!

In 2014 Mark Garnier MP said the new RDR rules, which he estimated had cost in the region of £3bn at that time, “had resulted in far fewer advisers servicing a more limited demographic of clients, with less incentive to innovate”.

Later that year it was reported that RDR costs were heading toward £6bn and it is no doubt now well in excess of that. In real terms that could represent  three new runways at Heathrow or one at Gatwick.

If Sants and the regulator were builders doing your house extension (or digging out a basement if you live in London) a few questions may be asked about the estimation process?

Panacea was among the over 290 parties to give oral evidence to the FAMR in November 2015.

Amazingly it quickly became clear that there was a considerable lack of understanding around many issues of IFA RDR concern. I think this is because there was a systemic failure to fully grasp how intermediated distribution works and why.

This failure to understand has been caused by a complete reluctance on the part of the regulator and the Treasury to ever listen. The whole RDR thing was bulldozed through, wheat and chaff together.

We advised the FAMR that commission was not a bad thing if fully disclosed and excesses managed. After all savings products are rarely bought by the mass market needing selling, something the ‘man from the Pru’ understood in the 1950’s and 60’s.

The Maximum Commission Agreement (MCA) during the 1980s was a perfect way to control bias by commission amount, that was until the Office of Fair Trading perversely objected. Using an unresolved conflict in government policy between investor protection and the belief in unrestricted competition they had it removed. That simple removal led to the huge commission override payments being made and the arrival of product or manufacturer bias and miss-selling, especially by the banks.

Responsibility is one of those words that politicians, government officials and regulators seem to shy away from.

But with 2016 just a few days old, perhaps this will be the year that somebody, somewhere in that rarified and isolated regulo-political ether holds their hands up saying:

  • yes I got it wrong
  • yes I was told it would not work
  • yes I did not listen

and because of that:

I will take responsibility and resign- no pay off, no garden leave, no knighthood and no ‘revolving door’ employment for at least two years.


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