Lord Flight: The Retail Distribution Review will leave many lower income people without good financial advice
The FSA announced on 7th September that they would be sticking to the New Year "Retail Distribution Review" deadline, but that, reflecting “proportionality”, Individual Financial Advisers will be able to get a waiver of the deadline if they are not yet ready to implement RDR requirements. This approach only adds more uncertainty and more cost to a process which has been flawed from the outset. Under what conditions would the FSA offer a waiver? Are such waivers to be issued equally? Does the FSA still have the manpower to implement what could be several thousand such requests?
Last month, the FSA also announced a 6.2% drop in Advisers this year, making a 10.6% reduction over two years. This represents a drop of 4,300 Advisers and if each of those IFAs has 600 clients, the FSA has already separated 2.5m clients from their Advisers. Add to this those Advisers who will exit on January 1st and those who want to carry on but will not have completed the required academic examination in time, and it is likely that a similar number will fail to make the deadline. There are the makings of a major consumer disaster with over 5m clients being detached from their historic Advisers.
Money Marketing announced last month that with less than three months to go only 36% of Advisers have their “Statements of Professional Standing”. This leaves over 22,000 Advisers not yet RDR compliant.
Given the economic climate and the current rate of unemployment the timing of this could not be worse. We are not just considering losing thousands of Advisers, but also their support staff, and professional advisers, and the staff of many product providers who will no longer be required to process their business. In addition, the IFA sector has always had an inadequate capital base as it has been supported by the Life companies and other larger organisations. The costs of change have to be met from a thin capital base.
More fundamentally, the EU has decided not to make a fees only regime mandatory and to allow Financial Advisers to opt out of RDR – as is now happening in Germany. Why is the UK not managing its timetable and requirements in line with the EU? The FSA seems determined to “get in first” with more demanding requirements, which are not in line with EU policy.
The Treasury Select Committee warned of these problems and recommended a year’s delay in the implementation of RDR, to allow sufficient time for reassessment and for the industry to address its requirements. The FSA and Treasury seem to be in denial of the pending shambles. A general one year waiver would have the advantage of allowing more time for those still attempting to qualify to do so, whilst allowing more thought to be given to the transition/requirements.
RDR is an elitist concept. The wealthy will not have a problem in paying Advisory Fees. But somewhere between 2.5 and 5 million people will find themselves without access to financial advice, for which the in-house products of the banks, which charge commission, will be the only option.
Much of the historic financial advice industry in the UK will be destroyed with major job losses. If the 1st January deadline is not delayed, for the industry at large, there will also be a period of chaos which will benefit no one, and especially the consumer, in whose name this policy has been created.