IFAs speak out over impending RDR

In 2008 the financial crisis loomed its ugly head and caused the world to slam the entire financial industry as irresponsible, too loosely regulated and generally wayward.

One of its regulators, the FSA, was berated, too, for being incompetent and generally not doing its job properly. Now, however, some might say, the FSA has swung full circle and is using its powers with full force.

In January 2013 the FSA plan to introduce new regulations for IFAs working in the retail investment market called the Retail Distribution Review (RDR). The main changes the RDR will enforce is IFAs working in this market will no longer be able to work on commission and all fees must be agreed up front before advice is given. In addition to this, they will have be further qualified and advice must consider all relevant options – and if not this must be clearly stated.

However, the government seem keen to scupper the FSA’s plan to introduce these changes in 2013. The Treasury Select Committee, chaired by MP Andrew Tyrie, carried out a report on the RDR and one of its key recommendations was that implementation of the RDR review should be delayed a further year. He fears it would be "putting large numbers of experienced financial advisers out of business" and therefore restricting consumers’ choice.

The FSA have yet to issue an official response. They did, however, anger Andre Tyrie by issuing an embargoed initial response which he described as “rejectingin a peremptory manner our recommendation of a one year delay to the RDR’s introduction.”

Should the RDR be postponed and what do IFAs really think of it?

Graham Beaver, an IFA at SPF Private Clients, reflects: “I don’t think they can put it back another year, if they do so it will make a farce of it.”

He admits he is ‘anti’ the RDR proposals but is not surprised that more regulations are coming into place.

“I am resigned to the fact that I can’t do anything about it. We are the only industry where our body that supports us, the AIFA, keeps pushing the goalposts and every time they do that we have to sit a load of exams, which costs us money, so the body can almost be seen as money earner,” he states.

It is these obstacles now facing IFAs which may make many leave the industry altogether. The FSA has recognised that the RDR will drive around 18 per cent of IFAs out of the industry.

The whole purpose of the RDR is to make independent financial advice more transparent - but can it achieve this if many advisors leave the sector as a result of implementation?

An IFA who is welcoming the changes is John Lang of Tower Hill Associates, he has joined a new IFA market place website, VouchedFor, which advocates RDR and is implementing it early.

He believes: “It can be more costly to go to a fee based advisor but you are almost guaranteed a better more unbiased advice.”

John Moon, an advisor at Edison Ford IFA, says: “I have a mixed opinion. I believe there are a number of advisors who need to be got rid of as they do not perform to the level I would like to see them perform. But on the other hand it does appear the way the FSA are implementing the RDR is over-prescriptive for those who are advising as they should.”

RDR will mean less choice for the market place because those who can’t afford to pay fees purely for advice, as opposed to paying commission on what they earn, may not be able to use an IFA.

“The worry of RDR is that the man in the street is not going to find an IFA that wants to deal with them because they are positioning themselves to deal with high net worth,” claims John Lang.

John Moon suggests it isn’t the low earners who will be affected but those notoriously squeezed middle.

“Those with limited means do not generally seek IFAs, but those in the middle may feel they can’t afford an IFA and the obvious place to go is a bank, where they will come into a sale situation rather than being given advice,” he suggests.

Graham Beaver also comments: “We can’t deal with everyone to make money we need to deal with the high earners. Because low earners won’t be able to afford to get proper advice they are going to be forced to buy second rate products.”

This is a point which seems apt considering yesterday it was revealed Barclays is to cut more jobs to help pay the £1 billion bill for miss-selling payment protection insurance loans.

Asked whether Graham Beaver believes the FSA are coming down heavy now to deflect from their past failings he says: “Yes, absolutely.”

John Moon is sceptical, too, but he admits it’s understandable they have reacted this way, although the focus should be on the banks: “IFAs act in a completely different way to banks who contributed most to the financial crisis then IFAs did.”

It remains to be seen whether the RDR will be delayed or even revised but it is clear from the IFAs point of view, and the government’s to an extent, that although these changes may bring about a more transparent way of trading they need to be revised to ensure IFAs are not forced out the industry and advice can benefit the majority and not just those with disposable incomes and investing capabilities.