By Harriett Baldwin, PPC for West Worcestershire
The Financial Services Authority is currently consulting on something called the Retail Distribution Review (RDR). The consultation closes on October 30th 2009, so if you are one of Britain’s many Independent Financial Advisers or the customer of an IFA, please consider writing in here.
As Britain shifts back towards a culture of savings, we are all going to need to rely more and more on good, independent financial advice. As more and more people find themselves responsible for their own pensions, we are going to need more and more good independent financial advice.
Against this backdrop, the Financial Services Authority has launched this consultation on new rules to set standards for investment advice. The worthy aim is to raise standards and trust for savers in the advice they are given.
However, many people are worried that the new standards are going to be so demanding and expensive for the industry that they are actually going to put small IFAs out of business and raise costs for all consumers. The winners in this review could be the banks and large investors.
I recently met with a group of Worcestershire IFAs, together with my colleagues Mark Garnier, PPC for Wyre Forest and Robin Walker, PPC for Worcester. Small IFA businesses are very concerned for two good reasons.
First of all, exams are to be introduced. A sole trader IFA who is in his or her fifties or sixties, who has experienced several market cycles, knows the product landscape, will be asked to study for up to 500 hours to take a professional qualification. If they fail, they must change careers.
Secondly, commissions will go. You will pay an up-front fee for advice. Immediately, if you are a small investor, that’s a big deterrent. As the FSA’s consultation paper says:
“There may be short term costs arising from market exits by Independent Financial Advisers and increases in product prices. In the longer term, cross-subsidies between consumers will be unwound: this may be a cost for smaller investors, but a benefit for larger investors.”
In the FSA’s consultation paper, the cost of these changes to the industry is estimated to be £430 million up front, and £40 million a year ongoing. That’s a cool half billion pounds that will certainly be passed on to savers.
Mark Garnier, Robin Walker and I have written to the FSA with our concerns. We’d like to see a “grandfathering” exception, so that an Independent Financial Adviser who has been in business for longer than the FSA has been in existence, and has an unblemished regulatory record, can still be allowed to practice his or her profession.
We’d also like to see consumer choice with regards to how you pay for advice. Either a fee-based service or a transparent and disclosed commission structure. Let the customer choose.
