OpinionJan 15 2015

Damning criticism of RDR buried under Xmas wrapping paper

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Damning criticism of RDR buried under Xmas wrapping paper
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A new year begins, and Financial Adviser gives me the new challenge of providing you with a weekly column on industry matters.

First we need to recover from the Christmas hangover we received late last year. In the week before Christmas, the FCA smuggled out two damning reports on the effects of RDR by European Consulting and Towers Watson.

Despite a cloud of platitudes, the European Consulting report said: “It did not find any evidence of consumer benefit.” None. Nada.

As many as 25,000 advisers and support staff have been pushed out of the industry, and the shareholders and policyholders of the UK have been lumbered with additional costs of £1.7bn for nothing.

The only thing the FCA can claim is that RDR’s ‘longer journey’ will benefit consumers. This is like Mr Micawber’s hope that “something will turn up”. Or perhaps more accurately in the same sense that the Luftwaffe’s bombing of Coventry was, in retrospect, the greatest example of town planning in history.

This is RDR’s true dichotomy. This is very old school, but the adviser’s first job is to challenge the client to start protecting and investing. The price of RDR’s commission-free world is the removal of that challenge from the common man, and with it any independence from the state when in need.

Historically, 16m consumers used the IFA sector transactionally. They accessed the sector when they needed us and often at a time when they did not have the readies to pay for advice, so commission was essential. Malcolm Kerr believes a quasi-commission advice model will need to be invented. He is right – but was not that we had before?

As regards the other report, Towers Watson is still remembered with anger by Equitable Life’s victims. Their report is a straw man discussion about how many advisers are required to provide post-RDR advice. It presumes that the only advice IFA clients want is the full-fat high-service new model adviser model. It is like saying that as long as Heston Blumenthal’s restaurant is full every night, world hunger is over.

My first task in 2015 is to write to TSC chairman Andrew Tyrie requesting that his committee examines how a regulator established by parliament has been so destructive to the consumer it seeks to protect. I hope his deliberations will be improved by the release of the final Heath Report in mid-February.

Garry Heath is editor of the Heath Report and former director general of the IFA Association.