OpinionAug 1 2014

RDR advice ‘gap’? It’s more of a chasm

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We need to finally stop talking about the advice ‘gap’. Because, if the findings of an ongoing report into the changes are to be believed, it is in the words of one of our Twitter followers, more of a ‘chasm’.

The Retail Distribution Review was back in centre stage this week, as adviser champion Garry Heath’s ongoing Heath Report claimed more than 20m people could end up without access to professional financial advice.

He said that early analysis showed that many advisers have already left the industry or are unable to service existing clients, meaning swathes of consumers have been left in advisory limbo.

Clients served by “undefined advisers”, those general IFAs who have not become boutique or developed a segregated advice model, were deemed to be the worst hit as they were still servicing transactional clients who were least likely to be able to pay fees.

Mr Heath’s calculations suggest that 12.5m people are already adrift - made up of 3.5m and 6m ‘orphans’ from IFA firms and bancassurance arms that have left the industry respectively, and 3m clients of advisers who can no longer serve them - and that up to 8m could follow in the coming years.

At this point I should caveat that Mr Heath is among the vehemently anti-RDR lobby within the sector that is predisposed to despise the changes, and his figures will be disputed by some - not least the regulator, I’d imagine.

But if they are in any way accurate they paint the most damning picture yet of the ‘unintended consequences’ the sector has been harping on about for two years.

More change coming

Financial Adviser columnist Kevin O’Donnell, also referenced RDR to question why it has not once and for all sorted out the issue of how advisers get paid, as noises from the Financial Conduct Authority suggest that adviser remuneration is likely to be looked at again in future.

He says the regulator’s third post-RDR thematic review is set to look at fee disclosure even more closely, although there is no suggestion that fees themselves will be scrutinised - despite arguments that perhaps they should.

In particular he calls for a move from the watchdog to demand advisers rectify the “less than common policy among advisers on fee disclosure”.

He says: “Possibly advisers fear that being too up front, too early about fees will deter new clients. It is a shame the regulator does not level the playing field by insisting on a common format for fee disclosure on adviser websites’ home pages, the starting point for many new clients.”

And John Lappin, columnist for FTAdviser’s sister title Financial Adviser, claimed an even bigger revolution was coming as he asked this week whether the Budget reforms are set to change the advice market as fundamentally as RDR.

This will present challenges for advice, he said. First there is a need to “formalise client conversations around inheritance tax planning given there is no government-imposed floor on this”.

Secondly, advisers need to shift the psychological bias of clients that “who have always been at the lower level of the risk scale for accumulation” but are “now at least talking a decumulation game that involves much higher levels of risk”.

FSCS keeping busy

The Financial Services Compensation Scheme declared three financial advisers in default this week over self-invested personal pension transfers, in addition to the previously reported investigation into TailorMade Independent Limited.

It revealed that 1 Stop Financial Services, Kynaston-Carnoustie Financial Consultancy Limited and Crawford Scott Ltd have all now been declared in default as a result of investigations into Sipp transfer claims.

The FSCS stated that it should be in a position to start processing claims in September - and that it “expects to see further similar failures going forward”.

It added that it has received increasing numbers of claims against IFAs that are no longer trading, in relation to advice given to transfer funds from existing pension schemes into Sipps, which are often then invested in non-standard asset classes, many of which have become illiquid.

The FSCS was also to blame for a fall in St James’s Place first half performance, after results had to reflect an expected full year levy of £6.9m.

First half results frenzy

H1 performance was mixed across the board, with Lloyds Banking Group reporting underlying profits up 32 per cent to £3.82bn, but was also hit by more than £1bn in conduct and legacy costs.

The FCA had fined Lloyds Bank and Bank of Scotland £105m for serious misconduct relating to various benchmarks. The Bank of England referred to the failings as the kind of “appalling behaviour” that triggered the creation of the Parliamentary Commission on Banking Standards.

Most ruinious for banks’ already battered reputations, it turns out Lloyds bankers were manipulating the rate used to calculate the financial crisis bailout, effectively costing taxpayers millions.

If this doesn’t prove the case for the need for criminal powers, I don’t know what does.