In November 2011 the FSA stated that “RDR requirements are expected to improve the quality of advice, reduce the incidence of mis-selling, and lead to increased persistency. They are expected, in the longer term, to improve consumer confidence in financial advisers”. So far, financial advice has been the real victim of RDR, so if you think that thousands of adviser (and support staff) job losses, closure of advice outlets, networks in even more peril (and heading for the restricted ‘exit’), preclusion of the majority of ordinary people from financial advice, increasing costs for those who stay (both adviser and client), and growth in execution-only are all good things, then RDR has been a success. So we need to watch how RDR ‘success’ is measured.
For instance:
* Quality of advice. We all know that Financial Ombudsman Service statistics show that tied advisers (usually bank or direct sales) have historically produced the vast majority of complaints, so, no doubt, their exclusion will reduce complaints. But improved qualifications in itself is no guarantee of quality. It is interesting that one of the early adopters (and vocal supporters) of fees now has one of the worst complaints records.
* Mis-selling. Again with so many fewer advisers and clients (who can afford advice) there are bound to be fewer mis-selling cases. And the likely growth in execution-only business will help here, as execution-only clients can rarely claim mis-selling (although it would be useful if losses suffered by execution-only clients due to lack of professional advice are included, as part of the collateral damage of RDR).
* Fewer complaints. Obviously a likely outcome as less business will be written on fewer clients by fewer advisers.
* Consumer confidence. One assumes that this is (at last) a nod towards the real world issues of getting more people to save and insure. The millions of pounds that RDR has cost the FSA, advisers and providers (both in extra compliance costs and lost business) must surely have such a positive aim, but the FSA’s obsession with commission as the root of all evil has, in reality, precluded many hard-working people from financial advice they badly need.
If RDR success is measured solely under the first two points then the architects of RDR can look forward to their comfortable retirements and gongs, but let us hope they are measured and accountable for genuine consumer confidence that manifests itself in more financial products being taking up (and not just the increased saving caused by auto-enrolment). But, as yet, I have not had a new client knock on the door with chequebook open saying that they now wish to take financial advice as RDR has restored their confidence in financial advisers. I fear the FSA’s definition of ‘in the longer term’ will be its ultimate get-out clause.
Mark Osland
Director and chartered financial planner
Formula
Croydon
Surrey
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