It’s been a while, dear reader. For the whole of January I was ensconced in a jury box at the Old Bailey performing my civic duty keeping the wheels of justice moving, and so have watched the first weeks of the New Year unfold from afar.
And what a start we’ve had. Just this week we had another nine-figure penalty being levied against a high street banking giant, Royal Bank of Scotland, for its part in the interbank lending rate fixing scandal.
The regulator has also kept minds focused, announcing that it has demanded a full review of sales of interest rate hedging products from all major banks, with the smaller banks and building societies to follow in the coming weeks.
It also proved its continuing proclivity for shutting stable doors long after the equine occupants have bolted by announcing a review of annuity sales to assess failures in the open market option. A welcome intervention, no doubt, but for many at least a year later than needed.
But if you’ll forgive a financial journalist fixating on the obvious, I’d like to direct my attention in this missive to a major unfolding story related to the ‘unintended consequences’ - a phrase we should all get used to, I fear - of the Retail Distribution Review.
In particular, anger over consumer detriment caused by RDR ‘double-charging’ has caught my eye. I’m not alone, either: some 680 advisers have written to the incoming Financial Conduct Authority chief executive to demand action on the issue.
Their opprobrium is directed at a failure to tackle providers that are continuing to charge higher pre-RDR fees that would have included commission despite this no longer being paid. The adviser is then forced to apply their own charge on top.
The FSA has accepted clients being hit with charges twice. Their pockets are being picked while advisers are being placed in the line of fireThere are examples of this in relation to general product charges, such as the report in FTAdviser sister title Financial Adviser of L&G structured products offering the same coupon to investors in the post-RDR world as before.
In other examples, top-ups have been singled out. FTAdviser reported earlier this week on a Prudential bond for which top-ups are being charged at the same rate post-RDR, with no increased allocation to the product and no rebate to the consumer.
In either case, the provider is accused of pocketing money that would have gone to the adviser, while the adviser has to take additional money from the poor end client to cover their own costs.
Obviously for advisers this is worrying. The RDR remuneration changes were sold on the basis of transparency, but should have amounted to a zero sum game. If this is not the case, seeking financial advice will become prohibitively expensive for many.
However, if the Financial Services Authority is found to be at fault the bigger crime is that consumers for whom a particular product applying such charges continues to be the most appropriate will suffer detriment. This undermines the whole aim of the RDR.
And make no mistake, it is the FSA that is at fault.
Taking top-ups as an example, the regulator’s policy statement on legacy assets in February 2012 openly acknowledged that providers would not update their systems for all products.
Indeed, the watchdog even as good as stated this was desirable, as it would prevent predictions of punitively high costs to the industry of implementing the proposals from coming to pass. The Association of British Insurers had said the costs could be as high as £460m.
Moreover, the FSA placed the burden for managing this at the door of advisers, effectively saying the fact that some products would continue to apply pre-RDR charges would prevent venal intermediaries from refusing to move clients into non-trail paying products.
In response to FTAdviser’s enquiries it maintained its tough stance, saying: “Where an adviser is providing a personal recommendation to a client we would expect them to consider the product cost as part of the suitability process for their client.”
Let me be clear: in the example above, Pru is doing nothing wrong. The FSA has actively allowed them to do this and has simply told advisers to manage the risk of detriment.
In cases where the existing product remains the most appropriate for reasons other than cost, I guess the client is just out of luck.
This is an abdication of responsibility. The FSA demands that providers ‘treat customers fairly’, but has actively refused to apply this set of standards to this case. Indeed, when FTAdviser put the question of how this situation fits with TCF to the regulator, it refused to address it.
It could have been so simple. All the watchdog needed to to do was state that while it would be impossible to update the systems on all products, a rebate should be offered to cover the commission that is no longer being paid.
Instead it has accepted clients being hit with charges twice. Clients’ pockets are being picked; advisers are being placed in the line of fire.
Worst of all, you cannot even justifiably call these consequences ‘unintended’.
