However that much cannot be said of the other side of the industry. The provider companies appear to have buried their heads in the sand for most of 2012, suddenly galvanising into panic action in the last days of December.
Advisers were faced with the arrival on a daily basis of new terms of business on various different products, each scores of pages long and all different. Whether through a lack of good management, or an arrogant belief that their size gives them the right to dictate terms, the provider companies appear to think they are in a position to dictate how RDR is implemented.
There appears to be confusion within each provider organisation too. One adviser phoned three separate people in Fidelity recently to ask a specific question about their procedures for adviser charging and were given three different answers. It is clear from the conversations given by the provider teams that there is a serious need for training and for clear guidelines at their end. I can sympathise with the teams who have to talk to us – it is not their fault – but it seems almost inconceivable that having known about RDR for some five years, they are so completely unprepared.
Furthermore, advisers are spending a disproportionate amount of time on a daily basis fighting the IFA corner and never has the provider-adviser divide been so apparent. Management time is being eaten up in email exchanges with senior provider managers on arbitrary decisions they have taken without proper consultation with us – and which unfailingly means more work done by the adviser not the provider. RDR was meant to be about getting a fairer deal for the client, but the reality is that the provider-adviser battle is in danger of costing the client dearly.
From the adviser side of the fence, it looks like the providers are using RDR to rewrite their terms of business to give themselves a bigger slice of the pie – either at our expense or, worse still, at the client’s. Cases are happening where the client is still paying the same to the provider – which would have included the adviser’s commission before RDR – and then paying the adviser separately for the advice. Treating customers fairly? I do not think so.
For example, one adviser concluded a guaranteed annuity rate arrangement with Aviva recently which was quoted in December. The adviser was paid by Aviva under the old commission rules using the notional marketing payment framework. If the adviser were to arrange that same business today, he would be told that he would not be paid by Aviva but that the client would have to pay direct for the advice.
However the client would still be paying the same charges to Aviva, which would, presumably, simply pocket the difference. The victim here is the client who will, essentially, be paying twice.
A number of providers have tried to step up to the mark, with groups of providers attempting to put together a coherent response, but in many cases it was too little, too late. For example, the creation of the provider Isa transfer ‘club’ was intended to ensure that in specie transfer arrangements could be turned around in no more than 10 days, but experience suggests that this is not being delivered.
One of the major issues for advisers is the treatment of trail commissions. Trail commission has been a key income stream for many firms who have been focusing on building long-term relationships with clients, so historically taking low initial commissions plus a steady trail.
Many advisers, including me, always felt that this was the ‘honourable’ way to charge clients rather than hitting them with huge initial percentages.
RDR has meant that when changes were made for the client, new client agreements had to be signed and this has triggered a high-risk situation for advisers. Firms who have not been keeping their eye on the ball may have found that their trail income has been irrevocably switched off by the provider if they have not handled the change over properly. Even when all the right boxes are ticked, the income stream may be interrupted. In a recent Sipp case with James Hay when the client changed funds, the trail commission was turned off. The client signed the agreement for it to be turned back on but when the adviser asked how quickly the repayments would be made, James Hay simply said it did not know. If the adviser does not have deep pockets, cash flow in the coming months could prove challenging.
What this means in practice is that the client is vulnerable to defensive action from the less-honourable advisers in our industry. Where before RDR we were warning of churning – advisers recommending changes to products and policies that would generate commission hits while they were available – the danger now is the opposite. Advisers could conceivably opt to recommend no change in order to preserve their existing trail income. It all sounds like ammunition for the next round of mis-selling claims and good advisers are going to have to be even more careful if they make a no change recommendation that their reasons why are properly recorded and agreed with the client.
The future of trail is under attack from consumer champions such as Money Box’s Paul Lewis but the bottom line is that the adviser has to get paid somehow. Many advisers discuss the concept of trail in full with clients when agreeing the right charging structure for their ongoing advice. It is not some kind of secret stash being squirrelled away behind the client’s back, it is part of an overall remuneration for the service the client receives and, in the main, the client both understands and appreciates this. If, as seems likely, trail is phased out in the next few years then clients will still have to pay for their advice, but through another route.
The relationship between adviser and provider has always been a delicately balanced one. The provider has long recognised that the adviser has an important role to play, but would clearly prefer the client to forget the intermediary and deal with them direct.
As an adviser, it looks to me that providers are trying to use their combined weight to suppress advisers: by adopting an aggressive attitude to RDR’s charging rules, they are making advice more expensive and could end up pushing some clients away from the advised route down to direct sales – and may ultimately force some advisers out of the industry. The FSA wanted RDR to provide a clearer, fairer market, but sadly the result could be less choice for clients.
Perhaps I am being unfair to providers – I would love to be proved wrong. If they are able to demonstrate that they value the involvement of the adviser by getting their combined act together – by training their staff and by co-operating with advisers on charging issues – then maybe we can all get back to working together for the benefit of our clients.
Carl Lamb is managing director of Norfolk-based IFA Almary Green
Key points
* Provider companies appear to have buried their heads in the sand for most of 2012, suddenly galvanising into panic action in the last days of December.
* Advisers are spending a disproportionate amount of time on a daily basis fighting the IFA corner and never has the provider-adviser divide been so apparent.
* The future of trail is under attack from consumer champions such as Money Box’s Paul Lewis but the bottom line is that the adviser has to get paid.
