Who is responsible for the RDR mass-market mess?

Almost 10 years on is a great time to reflect on the six pillars of Callum McCarthy’s RDR wisdom:

• an industry that engages with consumers in a way that delivers more clarity for them on products and services;

• a market which allows more consumers to have their needs and wants addressed;

• remuneration arrangements that allow competitive forces to work in favour of consumers;

• standards of professionalism that inspire consumer confidence and build trust;

• an industry where firms are sufficiently viable to deliver on their longer-term commitments and where they treat their customers fairly;

• a regulatory framework that can support delivery of all of these aspirations and which does not inhibit future innovation where this benefits consumers.

In laying out his vision, Sir Callum reckoned the industry would require a “collective shift away from product and provider bias, toward an incentivised and regulated distribution system”.

What has been achieved then?

Only the professional standards aspect has been a success, and even then for the average consumer in the street, that really means nothing.

Job losses, strangely something not mentioned in the ‘6 pillars’?

That trend continues for IFA firms. According to the latest Equifax Touchstone adviser movements in the 2014 year were as follows: 5,979 moved firm, 6,777 became no longer authorised and 4,576 became authorised.

A net adviser loss of some 2,201, 2015 results will be out soon.

Fears that the industry would be completely decimated still remain especially when looking at the tens of thousands of job losses in ‘provider world’ post RDR

Panacea warned back in 2010 that the RDR, despite it’s many good points, could have the unintended consequence of “disenfranchising” the majority of consumers from access to financial advice.

There was no doubting the RDR was a great commercial opportunity for interested parties, some who capitalised on it greatly - large wealth management firms, consolidators and long-established fee-based IFA firms.

But no opportunity was created it would seem for the mass-market consumer, the very people that RDR was meant to help.

Amazingly it quickly became clear that there was a considerable lack of understanding around many issues of IFA’s RDR concerns

It was clear from as early as 2009 that the regulator had chosen to ignore the clear, wise advice given by many leading industry figures who have seen the effect of badly thought out regulatory changes of direction before.

So when the wires started buzzing with the FCA’s ‘heads up’ navigational shift that it might not “rule out that there may be some element of commission, but we are not going to reverse the RDR” I headed to a dark room for an hour and undertook some deep breathing exercises.

Hector Sants stated at the FSA AGM in June 2010 that the RDR cost would be £430m.

In 2014 Mark Garnier MP said the new RDR rules, which he estimated had cost in the region of £3bn at that time, “had resulted in far fewer advisers servicing a more limited demographic of clients, with less incentive to innovate”.

Later that year it was reported that RDR costs were heading toward £6bn and is no doubt now well in excess of that.

Panacea was one of more than 290 parties to give oral evidence to the FAMR in November 2015.

Amazingly it became clear there was a considerable lack of understanding around many issues of IFAs’ RDR concerns. I think this is because there was a systemic failure to fully understand how intermediated distribution works and why.

This failure to understand has been caused by a complete reluctance on the part of the regulator and the Treasury to listen. The whole RDR thing was bulldozed through, wheat and chaff together.

We advised the FAMR that commission was not a bad thing if fully disclosed and excesses managed. After all savings products are rarely bought by the mass market needing selling, something the ‘man from the pru’ understood in the 1950’s and 60’s.

The removal of the Maximum Commission Agreement, which during the 1980s had been a perfect way to control bias by commission amount, led to the huge commission override payments being made and the arrival of product or manufacturer bias and mis-selling, especially by the banks.

Responsibility is one of those words that politicians, government officials and regulators seem to shy from. Perhaps this will be the year that somebody, somewhere holds their hands up saying:

■ yes I got it wrong

■ yes I was told it would not work

■ yes I did not listen

and because of that:

■ I will take responsibility and resign. No pay off, no garden leave, no knighthood and no ‘revolving door’ employment for at least two years.

Derek Bradley, founder and chief executive of Panacea Adviser