Ethics matters

Panacea Comment for Financial Advisers and Paraplanners

4 Mar 2019

Ethics matters

”Real integrity is doing the right thing, knowing that nobody’s going to know whether you did it or not.” – Oprah Winfrey

Financial advisers are fiercely proud of what they do and since RDR, most are 100% fee-based businesses. All are professional and most aspire to be treated as a profession.

I have not been an IFA for over 14 years, as many of you will know, but I have always been fascinated with how firms present themselves and their proposition to their clients and prospective clients. And how that proposition can appear to competitors

In the digital world, the constraints of print medium are no longer there. Now, more than ever, it is vital to ensure that the consumer has a full appreciation of the value of advice and the service you offer, this in turn creates a trust in the industry.

In my day to ‘big up’ your business by criticising you competitors was known as ‘knocking copy’. It was considered a no-go, not just with the ASA, FCA and FSA but also your fellow advisers. No-one should undermine another’s business’s model based on poor research or plain false assumptions just to promote your own.

It still should be.

So, when a community member passed this ‘about us’ content from a firm promoting its services, in particular some introductory statements on the firm’s website that noted their “Difference”compared to other firms, I thought I would ask you….

Is this the professional way to go about things?

Firstly, they extoll:

Focus: Unfortunately, most ‘advisers’ just sell products; this is true whether they are IFA’s, Wealth Managers or Private Bankers. Our service focus is on planning, not products.  It is designed to help clients identify, achieve and maintain their desired lifestyle, whatever happens. We use traditional fund management and insurance companies as little as possible!

and then:

Continuity: “A typical private banker or wealth manager will have more than 100 ‘relationships’ to handle and the average adviser also moves jobs every 6 years.  We have just 65 retained clients and plan to cap the number at around 80. With two advisers this gives us the lowest adviser to client ratio in the business. You may also be assured that we won’t be leaving for other jobs and many clients have been with us over 20 years.

They go on to say “Almost uniquely, we are both Lifestyle Financial Planners and investment advisers. Most top financial planning firms outsource their investment management which results in extra costs”.

I cannot comment on the service by the firm or indeed name the firm. My area of concern is around the sweeping, uncorroborated statements above.

You can promote your business far better by being very positive about your own firm without resorting to ‘knocking’ your competitors in such a blatant way. It looks unprofessional and almost certainly counterproductive. In other professions such copy could be grounds for a disciplinary hearing.

Suggesting you are the only honest fish in a sea of sharks does not give consumers confidence to join you in the water. We already have the regulator, ambulance chasers and the media talking advice down – we do not need to do it to each other.

Comparative advertising is a great way to make your IFA firm stand out in the crowd But it can be an area that generates complaints, both from competitors and consumers and can fall foul of the Advertising Standards Authority too.

Here are some helpful tips around what you can say, should say, cannot say.

What are you claiming, is this just fantasy?

Think carefully about the claim you want to make and how it will be understood by consumers. When making an objective claim, like those above, you should hold documentary evidence to support it before making the statement. Your website and statements on it are, after all, an advert for your business and they should be true

“Most top financial planning firms outsource their investment management which results in extra costs”. 

On what basis is this deemed to be factually correct?

Who are you comparing with?

If your marketing statements refer to an identifiable competitor, in the case above think other IFAs nearby, then specific rules apply. This applies to marketing activity which in any way, either explicitly or by implication, identifies a competitor or a service offered by a competitor – so not just where you name a competitor.

“The average adviser also moves jobs every 6 years”.

Is this based on reliable research evidence? Here you would expect to find an asterisk and footnote stating where this fact derives from.

Apples v Pears. Are you comparing services meeting the same need or intended for the same purpose?

Comparisons with identifiable competitors must compare services meeting the same need or intended for the same purpose. You still need to ensure the basis for the claim is made clear and that the statement isn’t likely to mislead.

“With two advisers this gives us the lowest adviser to client ratio in the business”.Is this a fair, relevant or supported assertion? Additionally, how do they know?

Is the comparison verifiable?

Comparisons with IFA competitors must objectively compare one or more material, relevant, verifiable and representative features of yours versus theirs. If checking that information requires special knowledge most consumers are unlikely to have, your website readers should be able to get a knowledgeable and independent person or organisation to verify the comparison on your site.

In the areas mentioned above you should ensure the website statement clearly shows how the comparison can be verified. “Most ‘advisers’ just sell products”, how can you verify?

I spoke with Garry Heath who has recently released the Heath Report 3. He noted that many of the assertions above required information which few have. For instance:

  • The Heath Report shows that IFAs on average have 160 clients in 2018. But in the 250+ responses there were some with just 10 clients. So, the firm is not “the lowest in the business”
  • It also shows that advisers have shed over 11m clients in the last decade – Advisers now have more potential clients than they can handle. Knocking copy is simply not necessary.
  • If advisers moved around every six years it would demand that 5,000 advisers are in flow in any year. FCA figures show they aren’t!
  • In the current market advisers do not sell products and to truly avoid using established fund management would require an extraordinary amount of expensive research.

The FCA has some useful information around advertising, from my business experience there are many out there who will say and do anything at the expense of others.

Thanks to the ASA for some really useful research. Year on year, roughly 70% of the complaints the Advertising Standards Authority(ASA) receives relate to misleading advertising, proving that this is an issue that consumers take seriously and that all marketers should be mindful of.

Here are their top tips to help you avoid the most common mistakes.

Be careful out there!

Back to the future

Panacea comment for Financial Advisers and Paraplanners

9 Oct 2017

Back to the future

Another major brand has announced that it is about to increase its financial planning operation with a hire of some 30 new advisers and another 70 next years. A sure sign that the 2017 advice gap provided both opportunity and a solution to dealing with the thousands of disenfranchised customers of major, highly reputable brands who have to find a way to service former IFA clients who no longer have an IFA, having fallen victim (if that is the right word) to IFA segmentation since RDR.

In 2011 I noted there was growing concern about what consumer reaction would be to what has now been done in their name by the then regulator, the FSA.

I observed that as there were only so many high-net worth clients out there, what will happen to the mass market advice model, and asked what will happen to the “orphan clients”? Will we see the return of the “Man from the Pru” and provider ‘sales’ forces?

It would seem I was right some six years later.

Trade press of 4th March 2010 alerted readers to a then quite astonishing admission by the FSA’s then Head of Investment Policy Peter Smith.

It reported that when speaking at a Chartered Institute for Securities and Investment Private Wealth Management Conference in London, he spoke about the potential for consumers rejecting the big idea about adviser charging and confessed, “If consumers still do not want to engage with it then we probably will have to do something else.”

This really beggars belief. The various discussion and consultation documents have thrown up numerous proposals, many of which have been dropped, reformed or deformed and it is absolutely clear that much RDR directional thinking had been navigation at sea with only a world atlas to chart the way- something that will give a general idea of what landmass is where but zero detail about the hazards presented by the ocean the vessel is travelling on.

This may be acceptable behaviour in regulation-world but let’s not forget that it is the advisers and consumers whose boats would be heading for the rocks.

It was clear in 2010 that the regulator failed to understand the psychology of adviser/client interaction. In 2011 it was the same but it has no intention of listening to the responses from experienced industry navigation professionals, providers, lawyers, MPs, trade bodies and of course advisers.

Not content with being the body that was asleep at the helm when Northern Rock slammed into the rocks followed by the rest of the UK banking “Armada” it seems the FSA also wanted to be remembered as the quango responsible for the decimation of retail financial services.

With all this in mind, perhaps we should look back to 17th June 1999 and the Commons 1st reading of the FSMA 2000 bill and ask the question, why does nobody in regulation ever learn from it’s past mistakes.

The transcript of this debate from 1999 highlighted  so many issues of concern that were expressed then with the seemingly strange phenomenon in the regulatory world of foresight!

Nobody listened then and I am reminded of the quote from the late Bob Monkhouse when thinking about the impact of poorly thought out regulation upon the consumer of tomorrow “They laughed when I said I was going to be a comedian. Well, they’re not laughing now”.

The industry is not laughing now, neither was the mass-market consumer after the 1st January 2013.

We had to destroy Ben Tre in order to save it

Panacea comment for Advisers and Paraplanners

24 Apr 2017

We had to destroy Ben Tre in order to save it

For those not old enough to know too much about the U.S. involvement in the 1960’s Vietnam war, and some of the madness surrounding it, this quote has gone down in history as an example of the some of the insanity that was Vietnam.

As with many examples of madness in what should be a sane world, this quote, which I was reminded of recently, is well worth considering alongside. It is Callum McCarthy’s six pillars of wisdom speech at Gleneagles in September 2006.

The so-called pillars on which RDR was to be founded were:

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. 

The Heath Report Two (THR2) had been created to examine the consumer detriment caused by the regulator’s actions in introducing the Retail Distribution Review.

The Heath Report Three (THR3) will be published toward the end of May.

As Garry said “It did not seek to be a learned academic document but to assemble in one place a clear description of what RDR has created and suggest lessons that might learnt”. 

In April 2014; the Panacea Team, Lee Travis, now at PFS and Garry Heath met the with the FCA which dismissed the survey of 1,752 advisers, representing over 50% of the direct authorised IFA firms, as “unimportant

At that April meeting, the FCA informed us that it would issue an internal review early in the autumn which we expected to be in praise of RDR.

In the end, the FCA commissioned European Consulting and Towers Watson to produce and issue two lacklustre reports, which were quietly released in the week before Christmas to a distracted media – hardly the action of a confident regulator.

These reports suggested that there was “no evidence of consumer benefit” leaving the FCA to opine that RDR’s “longer journey will benefit consumers”.

As Garry observed, this is reminiscent of Mr Micawber’s hope “that something will turn up”.

With the advisory community barely having the capacity to service some 10% of UK consumers financial planning needs and with the remaining 90% who do not want or cannot afford to pay for financial advice, we seem to be in a similar situation to the one described by Captain Miller’s, US Army Corps of Engineers  Commander, Task Force Builder, 1968  46th Engineer Battalion  159th Engineer Group ,recollection of Major Booris’s reasoning for destroying a whole village with so much firepower.

In the case of RDR only one of the six pillars stands, number 4. And as we all know you cannot build any sustainable structure on just one pillar. It just falls down. The regulator has ensured that the other five cannot be built as the ground beneath it has been destroyed by too much regulator firepower.

In the Vietnam movie ‘Apocalypse Now’, Captain Willard, played by Martin Sheen, asks a seasoned vet while riding a helicopter over enemy terrain “why do you guys sit on your helmets”?

The answer could be the same reason why IFAs only have a 10% capacity for advice?

Regulation, will we ever get it right?

mansleepingI had the great fortune to sell my IFA practice 10 years ago, a driver for taking the plunge was that having worked under the ‘control’ of 4 different regulatory regimes- NASDIM, FIMBRA, PIA and FSA, the prospect of never seeing a balance of common sense and fairness painted a very bleak future.

The jury may still be out in that regard, but I think we are at the stage where the Judge may be directing the Jury that a majority decision would suffice.

I am not normally driven to negativity, cynisim maybe, and while I do see an absolute need to have regulation of financial services, it seems to me that wherever there is regulation, chaos and extreme cost is the outcome with blame being laid at the door of the weakest.

Some key facts to digest:

  • Regulation is poorly thought out in just about every industry
  • It is reactionary rather than pro-active
  • It is not always retrospective, although in financial services it seems to be an exception
  • Nobody ever listens to the voice of experience
  • Nobody ever learns from past failings
  • Nobody in regulation admits failure
  • Nobody in regulation takes the blame
  • Everyone in regulation benefits from ‘learnings’ and earnings
  • Regulatory failure is rewarded not punished
  • Regulation is an industry, it is hermaphroditic, capable of self procreation and without something to bash it would have no purpose. As Keith Richards (Rolling Stone not PFS) once said “In the business of crime there’s two people involved, and that’s the criminal and the cops. It’s in both their interests to keep crime a business, otherwise they’re both out of a job.”


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 NHS is an example of regulation on ‘acid’.

Has the consumer benefited? Many may say no. Access to financial advice for the masses has been exterminated. Even if it was freely available, there is insufficient capacity to service any more than around 10% of the population based on the recent Heath Report and the FAMR will not correct that imbalance as was intended.

In 2009 the great and the good expressed concerns about the impact of RDR and how it will disenfranchise consumers, here but just a few to prove my “Nobody ever listens to the voice of experience” comment

  • Otto Thoresen – CEO ABI, then of 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”
  • 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.
  • 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 MP 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?

Fines are at record highs for the same bad behaviour from the same suspects, regulatory costs are at an all time high, huge FSCS levies continue to hit ‘small businesses’ when least expected, politicians have no control of those they leglislate to regulate, those employed in financial services regulation have increased, those employed in the financial services sector they regulate have decreased.

The problem with regulation in 2016 is that you cannot regulate for lack of common sense, yet that is what we keep trying to do. Caveat emptor has gone.

We have lost the use of that in-built gene of common sense when looking at constructing and applying regulation.. Its loss went along with map reading skills, crossing the road after looking both ways, not talking to strangers, proficient cycling, spelling ability, simple mental arithmetic skills and very many more.

The world has truly gone mad, or at least it has in UKplc’s regulation section.

We have a society that is now readily and speedily offended on somebody else part for just about everything that simply should not matter as much as it does.

We have borders that are not fit for purpose, we have an NHS in meltdown because the service is now aspiration and expectation based, rather than focusing on the basics of it’s original 1948 founding principles (comprehensiveness, within available resources) and a country controlled not by UK based elected politicians but by unelected civil servants, quangos, eurocrats and regulators.

To top that we now have ‘Brexit’.

To borrow that famous Bob Monkhouse quote “ When I said that the proposed RDR regulation would not work, everybody laughed. Well they’re not laughing now.

The chiefs remain in Edinburgh and London but the people are gone

 The chiefs remain in Edinburgh and London but the people are gone

Please forgive me for seeing similarities between the latest ‘post A day’ adviser number fallout 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 whom such things were once a commonplace reality.

The chiefs remained in Edinburgh and London, but the people had gone.

We now have confirmed that as at the 11th February 2016 the number of level 4 qualified advisers in the UK is 29,144.

In January 2006 FT Adviser also notes from an FOI request that adviser numbers stood at 105,710

Some 75% of experienced financial advisers who could have helped provide valuable advice capacity have simply disappeared from the register since 2006.

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 knighted ‘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 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”.

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 or cost reductions.

And along with the loss of livelihood for advisory firm staff, provider staff and paraplanners, we are now seeing the results of the ‘survival segmentation’ manifesting itself in consumer disenfranchisement- the unintended but sadly expected outcome of RDR.

The ‘new-speak’ use of words like “capacity” is a nicer, less disturbing way to describe casualties of the unintended or perhaps intended consequences of poorly thought out regulation? ‘Capacity’ is an FCA use of language, equivalent to ‘friendly fire’ or blue on blue’ instead of saying ‘shot by your own side’ or ‘rendition’ instead of state sponsored kidnap.

Those advisers who have survived RDR have built, grown and now transitioned some great businesses. This has taken many challenging years of serving their clients very well to achieve.

But will Andrew Bailey give this very simple thought some consideration,?

Fewer firms having to pay ever more in regulatory fees and levies (despite the logic that fewer firms to regulate should cost less) will see the those surviving financial advisory firms driven out of business as the regulatory cost to run them becomes prohibitive to all…… except the banks.

Rather like those Highland Clearances is’nt it?


Panacea comment for Financial Advisers and Paraplanners

26 Apr 2016


Financial advisers that accept invitations to sporting events, concerts or social events from product providers may be breaking conflict of interest rules, the FCA has warned.

It reckons that those accepting invitations to golf days, concerts, a day at the races or other hospitality events that “did not appear capable of enhancing the quality of service to clients” would be in trouble as such ‘largesse’ was “not conducive to business discussions” and that any dialogue with advisers “could better take place without these activities”.

COBS guidance on inducements states, amongst many things, that there is an “ obligation of a firm to act honestly, fairly and professionally in accordance with the best interests of its clients”.

Although I have not been an adviser for over 10 years, there are a number of factors that trouble me with this latest ‘guidance’.

  • I find it inconceivable that any adviser, especially in a post RDR world would be influenced by a ‘day at the races’. To suggest otherwise is grossly maligning the professional, ethical status of advisers.
  • Financial services companies put vast amounts of money into sport. They do it for many reasons, brand awareness mostly, without the sums involved many sports would not survive and as a result the participants and the fans would suffer.
  • If, as part of that ‘sponsorship’, those firms wish to ask some advisers along as a way of demonstrating appreciation of a business relationship, what is so toxic about that?
  • Firms like Standard Life (Ryder Cup) AEGON (LTA tennis) Aberdeen (Cowes Week- expired 2015) Investec (the Derby & Test Cricket) Vitality (athletics) Royal London (Cricket) LV= (Cricket) Aviva (athletics) M&G (Chelsea Flower Show) have generously supported these events. To do so, they have to commit for many years and some very large sums of money are involved. If these rules mean that the very people who ‘distribute’ their products can no longer attend, part of that sponsorship value has been diluted yet the sponsorship money paid cannot be refunded to reflect that fact.

If hospitality is considered a no-go area for advisers, it may be of interest to know something of the hospitality and gifts that has been lavished upon- and accepted, by the Chairman and Executive Members of the FCA’s Board.

In the interest of fairness, FCA rules at January 2016 state that any gift with a value of £30 or more must be declared and surrendered so that it can be used within the FCA or charitably disposed of.

FCA records from April 2013 onwards show gift and hospitality summaries, all strangely without an exact cost. We cannot see any information relating to the FSA, pre April 2013.

Gifts include £450 worth of Aspinall Black Leather document case in June 2013 given to Martin Wheatley, a dinner and private viewing of an exhibition (courtesy of Ernst & Young) for Lesley Titcombe, 6 bottles of Bollinger given to Tracey ‘make mine Bolly’ McDermott by Slaughter & May on the 26th November 2014.

I have no doubt that all FCA staff “act honestly, fairly and professionally but why would such gifts be given let alone accepted when they clearly cannot or should not be for personal consumption?

Now for the dinners, again no value disclosed. The sheer number involved  would seriously reduce weekly grocery and wine bills for many, possibly excepting Mr. Creosote.

John Griffith-Jones comes out the clear winner. In fact I would be quite surprised if John Griffith Jones has any need for a kitchen given the massive roster of lunch and dinner engagements he has fitted in over the years. Still as they say, somebody has to do it.

I am particularly amused by the notation attaching to a gift declaration given to Mr Griffith-Jones on the 29th May 2014 by the Indonesian Financial Services Authority simply stating, “Glass box containing a silver ship (1 sail damaged)”. 

I can only assume it must still be worth over £30 even in scrap value.

Perhaps any vital dialogue with any of the above “could better take place without these activities”.

Hospitality is not a dirty word yet the FCA seems intent on making it one when it apples to those they regulate. It is in their eyes a temptation rather than applying some adult thinking around personal responsibilities and the  obligation of that firm to “act honestly, fairly and professionally in accordance with the best interests of its clients”.

While acknowledging that there will always be times when accusatory fingers can and will be pointed (rather like mine is above) some element of what many would consider normal commercial practices should be encouraged.

If the FCA pursue this route, where will it end in the interest of fairness? Will we see ALL corporate entertainment be declared illegal by parliamentary statute?

Perhaps the FCA should ‘relax’ a bit and borrow some corporate entertainment inspiration and encouragement from the late Victoria Wood for its rulebook on the subject:

“Go do it, let’s do it,

Do it while the mood is right

I’m feeling appealing,

I’ve really got an appetite 

Businesses have been given three months to comply with the new guidance.

April fool, decide for yourself?


April fool, decide for yourself?

All advisory firms in a post RDR world have had to look carefully at their proposition, segment their client base and decide what to charge their clients taking into account the underlying costs of running their business.

This would include things like staff cost, regulation, accountancy, capital adequacy, legal, utilities, insurances, office premises, FSCS, taxes, NI, pension contributions etc.

These numbers would then be incorporated into some P&L software and in Mr. Micawber speak, doing the ‘math’ on the tried and tested formula of “Annual income twenty pounds, annual expenditure nineteen pounds nineteen shillings and six pence, result happiness. Annual income twenty pounds, annual expenditure twenty pounds and six pence, result misery”, and see what the outcome is for them.

Financial advisers in fee block A013 may be interested to know that for the fee year 2015/16 the latest forecast for FCA regulatory fees to be invoiced was £74.85m.

So, with this thought in mind, we asked if the regulator could confirm what it actually costs to regulate this group of adviser firms.

The reply should be the cause of some concern.

  • Dear Mr. Bradley
  • Freedom of Information : Right to know request
  • Thank you for your request under the Freedom of Information Act 2000 (the Act) for information aboutFCA Regulatory Fees, specifically:
  • The amount levied in FCA regulatory fees for firms in the A013 category (Advisory only firms and advisory, arrangers, dealers, or brokers) in 2015.
  • The actual cost incurred by the FCA for regulating those same firms in the A13 category (Advisory only firms and advisory, arrangers, dealers, or brokers) in 2015)”
  • Following a search of our paper and electronic records I am writing to tell you that we do not hold the exact information you are seeking, for the reasons set out below.
  • Point 1: We have still to complete our invoicing for the fee year 2015/16, but our latest forecast for FCA regulatory fees to be invoiced in respect of A13 fee block for the period is £74.85m.
  • Point 2: We no longer carry out an exercise where the actual costs are calculated against each fee block compared with the fees invoiced. We consulted on stopping this exercise, referred to as a ‘true up’ exercise in CP10/5 (March 2010) Chapter 9 paragraphs 9.16 to 9.20 We did not receive any objections to that proposal.
  • The amount of our annual funding requirement (AFR) allocated to fee-blocks is based on where we plan to use our resources in the next fee-year. We consult on the fee-rates to recover these allocations in our annual March fees-rates consultation paper (CP) and feedback on responses in a June Policy Statement. For 2015/16 the allocation to the A013 fee-block was confirmed as £74.9m in Policy Statement PS15/15 Chapter 2 which includes our feedback on responses to the March CP.


If I may draw on another Dickens quote from ‘Little Dorrit, “I am the only child of parents who weighed, measured, and priced everything; for whom what could not be weighed, measured, and priced, had no existence.”

The FCA, who seem to have a data metric on just about anything and everything cannot quantify what it costs to regulate this fee group?

I find this hard to believe. A regulated firm would not be deemed fit and proper if it had no idea of what it costs to run their business.

The time has come for some openness. To simply say that “We no longer carry out an exercise where the actual costs are calculated against each fee block compared with the fees invoiced” is just not good enough. This is a simple P&L exercise surely?

And as for not getting any objections to their ‘true up’ exercise, I think they should assume that they might well have one or two now.

This is NOT an April Fool.

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.

Panacea’s input to the financial advice market review (FAMR)

In November, I was asked by Harriet Baldwin MP (who many may remember came to a Panacea ‘Meet the MP’s event” shortly after her election in 2010) to contribute to the HM Treasury Financial Advice Market Review (FAMR) due to the size, influence and knowledge of the Panacea community.

The Financial Advice Market Review, as you will be well aware, was launched in August 2015 to examine how financial advice could work better for consumers. It is co-chaired by Tracey McDermott and Charles Roxburgh, Director General of Financial Services at HM Treasury.

The meeting with HMT’s Tara Fernando and some treasury seconded FCA officials lasted some ninety minutes where a number of concerns with regard to the five specific FAMR reference sources were discussed for the benefit of the consultation.

There was a great willingness to listen.

It was very clear that there was a considerable lack of understanding around many issues of IFA concern. I think this is because there is a knowledge gap, possibly caused by a failure or desire to fully understand how intermediated distribution works and why. And to understand advice responsibility anomalies such as the current lack of longstop.

It is also clear that regulators do not understand that savings and protection products are sold to the mass market, not actively purchased.

The Treasury and the FCA appear to have no knowledge of the workings or long history of commission payments, the maximum commission agreement or its reason for removal.

You may find the following bullet points with some supporting links, that were the subject of some detailed conversation, to be of interest:

1. The extent and causes of the advice gap for those people who do not have significant wealth or income 

  • Heath Report an overview, access to the report and podcast
  • Commission v Fee the RDR/ GFK report
  • Fees and the post RDR world
  • UK advice & distribution model
  • The FCA was trumpeting the fact that adviser numbers had gone up since RDR and the industry should as a result rejoice.
  • From January 2012 to July 2013 23,406 registered individuals (RI’s) have left the industry and 9,573 have joined.
  • For 2014, 5,979 RI’s have moved firm, 6,799 are no longer authorised and 4,576 have become authorised. Some 17,332 changes in one year and a 2,223 net loss of RI’s. Hardly something to shout about.

2. The regulatory or other barriers firms may face in giving advice and how to overcome them

  • Cost, known’s and unknowns, FSCS funding is wrong, unpredictable and unfair.
  • PI cover, retrospection of regulation makes pricing impossible, a claim makes even getting it a herculean task (air bag analogy)
  • New blood, the aspiration of many to start a new advisory firm has been dampened to say the least. The costs are enormous.
  • FOS perceived bias FOS survey, a link to 2014 survey and to the 2011 survey
  • FOS has no affordable right of appeal, unlike ABTA for example
  • Longstop removal and some other notes on the subject. Regulators today are in many ways a ‘doppelganger’ of the trade unions of the 1970’s, creating unrealistic, restrictive working practices at high cost allowing little or no competition. And we all know how that ended.
  • Many small firms live in fear of the FCA and will not raise their heads above a paparapit to voice concerns for fear of retribution. Very worrying but perhaps ‘Sir Hector’s message was received and understood
  • The ‘Waterbed effect’. It’s effect is the natural but not necessarily intended potential to squeeze one part of a complicated and complex regulated business model (and the attendant regulatory processes) to cause a serious bulge elsewhere in the process.

3.  How to give firms the regulatory clarity and create the right environment for them to innovate  and grow

4. The opportunities and challenges presented by new and emerging technologies to provide cost-effective, efficient and user-friendly advice services,

  • Simplified advice, but what is it- needs defining
  • A solution: to licence a product as fit for purpose, with that purpose clearly defined, as part of the process is the single most effective consumer benefit a regulator could put in place. It is the CAA equivalent of being fit to fly, it is the Food Standards Agency equivalent of safe to eat, it is the VOSA equivalent of saying your car is safe to drive.

5. How to encourage a healthy demand side for financial advice, including addressing barriers which put consumers off seeking advice

  • Consumers should understand that advice comes at a price but that price and the method of how it is actually paid should be determined by the client and adviser firm together and not a regulator.
  • Is commission still a dirty word?
  • Maximum Commission Agreement (MCA) during the 1980s and perhaps earlier there was an apparent unresolved conflict in government policy between investor protection and the belief in unrestricted competition. OFT objected!
  • Pro bono working in IFA firms was the norm in a pre RDR world
  • It is not in a post RDR world
  • The circle game? FSA told consumers advice under RDR wouldn’t cost more. Right possibly, but fewer now have access to it

The review will close on the 22nd December 2015, you have just a few more days to contribute.

Here is a link.

RDR learnings

At the beginning of August, the ‘You could not make it up” season got well underway with HM Treasury and the FCA launching a review to examine how to plug the advice gap (their own regulatory actions had caused). Well, they missed that last bit out in the announcement.

Anyway, a week or so later we learn that US regulators are/were in discussion with the FCA with a view to learning from the UK’s experience of implementing the RDR reforms.

It would also seem that in 2010, the FSA and FINRA (who regulate US brokers remunerated by commission) entered into a memorandum of understanding to support more robust co-operation between the two regulators.

Really? I am not sure what the reverse of that statement around “America sneezes and the UK gets the flu” is?

But if ever there was a better example of messed up regulatory thinking and political miss-management around the “learnings” part, the lead up to RDR in the UK and the resulting advice gap we have today, this is it.

We hope that America listens and learns where our regulators did not.

Here is an adviser “must read” for 2015, we highlighted the well warned of failures that RDR would produce over 5 years ago.

May I rewind you to the 19th July 2010 for a ‘told you so’ history lesson on the route map to statements emerging last week surrounding the success of RDR.

And the US regulator is asking the FSA to share learnings? How can anyone learn if the knowledge giver does not listen?

My observations in 2010, parodying the late, great satirist Peter Cook, in ‘Derek and Clive’ conversational style with Hector Sants, Martin Wheatley or George Osbourn on the subject still stands “ is this any way to run a ******* ballroom?