Firing Line: Waging the war against RDR and how the industry needs to restructure itself
One could almost be forgiven for thinking that the RDR had been a success. Certainly, numbers of IFAs have dropped a little and the FCA has criticised a few over their lack of transparency.
But most people seem to have got on with the job. Not so Garry Heath. The former director general of a previous incarnation of the advisers’ trade body, is now a consultant and is writing his own report into the state of industry.
He said RDR has been a disaster. The industry is restructuring itself, so that fewer and fewer clients will have access to advice, he added. With around 33,000 advisers at present, and RDR favouring those who just cater to a few clients, the consumer will miss out.
He said: “If you’re sitting there and you want advice, where do you go? It may well be that you have nowhere to go in a few years.”
After surveying 1,500 advisers for his interim report, he found that there were three types. At the top is what he calls the “New Model Adviser”, each with about 65 clients, and each of these clients gets a top-flight service and a lot of adviser time. He estimated that there are about 11,000 of these advisers.
The next tier, which he called the “segregated adviser”, covers another 11,000. They will try to keep more of their clients, although they are less successful in making a business out it.
The final tier of 11,000 comprises the adviser whose clients are much more transactional; they turn up every now and then when they have a specific problem to sort out, such as a mortgage. These clients were the most reliant on the commission system, and this is the sector that had been losing out most from the RDR.
Mr Heath said: “A lot of clients have looked upon commission as being free. [The transactional model] is the biggest part of how the IFA sector works; the RDR completely militates against that. From those [IFAs] in that position, the amount of new advice they are giving is getting much smaller.
“The average number of clients in 2010 was a shade under 400, but the average number per adviser nowadays is 108. So every adviser appears to have lost 300 clients.”
More clients will lose their access to advice in 2016, when trail commission gets switched off, Mr Heath claimed. Many advisers’ clients are used to paying commission and advisers are reliant on the trail they generate.
Mr Heath said: “I estimate that 5,500 advisers with 700 clients each will lose that money overnight, at which point there’s probably another five or seven million who will not be getting advice.”
In total, Mr Heath reckoned that the RDR will prevent more than 20m people from getting access to advice, once the teminated bank adviser teams have been taken into account.
“The RDR has destroyed a huge amount of access to advice for 10m people who could easily have gone to their banks’ advisers, or in excess of 3.5m IFAs who have simply left the industry. When the IFA market settles down, it’s quite possible we lose another 10m, he said”
Mr Heath is quite clear about where the blame should lie, and that is with the regulator and other institutions that brought about the RDR.
He added: “There’s a presumption, and it is right across Westminster and Whitehall — there is a group of people who think they know better than us. They say: ‘We are going to define this market and decide what is best for the consumer’, and they have decided it would be much better if there was no commission.
“It’s a point of view, but there was not a queue around the block from consumers demanding this. This is just social engineering at its worst — ‘We have the power, no one can stop us, we’re going to do it anyway’.
“A few advisers might have been swayed by the commission payments, but there have been claims that many more gave advice on products where there was no commission,” Mr Heath suggested.
And anyway: “The regulator should have been policing the problem, not turning to the consumer saying ‘It’s difficult for us to police this. What we’re going to do is just ban it, and now you’ve got to pay fees and pay VAT’.
“I really think that the FCA has much bigger problems than this. The Fos is inundated with banking complaints; there is no great drive from the FCA to deal with the banking sector.”
Mr Heath is not against the increasing professionalism of the sector; he is all for it, but it should happen at its own pace. He said: “If you let the market do what it’s going to do, it will probably get there with the maximum number of clients, rather than say ‘We have decided’.”
He has written his report — the final version is due out later this year — mainly because the FCA is planning its own review of the RDR this year, maybe in the autumn. But he also felt that Apfa, the trade association of advisers that developed out of his original organisation, the IFA Association, is not defending the average directly authorised adviser.
He said: “The IFA sector needs to start fighting its own battles again, because in my view Apfa is never going to do that for them.”
Melanie Tringham is features editor of Financial Adviser
Garry Heath’s career ladder
2014-present Consultant, Mountain Consulting
2014-present Editor in chief, The Heath Report
2012-present Main board director, European American Capital
2012-present Vice chairman, Wycombe Conservative Association
2008-present Chairman, Chartered Institute of Marketing
2012-2013 Marketing director, Cassley Group
2008-2011 Chief executive, Financial Inspirations
2007-2012 Managing director, Life Change
1999-2001 Director, IFA Portfolio
1999-2001 Chairman, Portfolio Member Services
1989-1999 Director general, IFA Association
