I am sure readers are as tired as I am of the number of mentions of a ‘post-RDR world’ in coverage of all things relating to advisers and their business. The phrase has quickly entered the journalistic lexicon, and frankly it can be useful shorthand when assessing how the industry has adapted to the raft of changes that have sprung up as a consequence of the regulation.
The unconditional nature of the post-RDR terminology came to mind again last month, when the US government decided to scrap its ‘fiduciary rule’. Long in the works under ex-president Obama, the rule was in some ways stricter than RDR, but would have had a broadly similar impact. Commissions were under threat, a variety of new responsibilities would have been introduced, and many advisers and providers campaigned against it.
While RDR implementation continued through the transition from a Labour to a Conservative-led coalition government in 2010, the fiduciary rule was unable to survive the White House’s transition from a Democrat to a Republican. What was the difference between the UK and the US? It may be that it would have looked unseemly to cut back regulation in 2010, just two years after the financial crisis. Or it may because of a new US administration that views the issue like this: “This is like putting only healthy food on the menu, because unhealthy food tastes good, but you still shouldn’t eat it because you might die younger.”
This was the slightly worrying analogy used by Gary Cohn, an economic adviser to the president, spoken in justification of the roll-back of the rule. So the legislation dies in the US, its ancestor lives on in the UK, and Europe will have to face up to its own version when Mifid II finally comes into force on 1 January next year.
Back to our own environment. Is it time to move on from viewing everything through the lens of RDR, from the ‘post-RDR world’ to whatever comes next?
Advisers have plenty of other issues to deal with now, after all. But the truth is many of these still stem from the reforms implemented at the end of December 2012.
If you want some concrete examples, just take a look at the topics we cover in this month’s issue of Money Management: the rise of passives, the rise of discretionary fund managers, and of course the Financial Advice Market Review (FAMR). All of these are derived, at least in part, from the changes introduced by the RDR.
As I’ve previously discussed, the third of these is a sign that the government and regulator acknowledge the existence of unintended consequences arising from their earlier changes. The tinkering is far from over. There may be a few more major upheavals in the pipeline, too.
As frustrating as this may feel for advisers, it’s inevitable that a shift of this magnitude does not get everything right first time around.
Here, the misinterpreted words of former Chinese premier Zhou Enlai spring to mind. Asked in the early 1970s about the impact of the 1789 French Revolution, he famously declared it was “too early to say”. The only problem with this response, taken as a sign of China’s long-term time horizons, is that it stemmed from a misunderstanding. Mr Zhou had apparently been referring to the French student uprising that took place just a few years earlier in 1968.
As with political change, so too with regulation. A few years on from the RDR, and it remains too soon to say what the ultimate consequences of its introduction will be. Will the advice gap worsen long-term structural problems for the UK’s savings regime? Will better outcomes for existing clients offset this? What are the repercussions of the structural shifts in how advisers do business? We still have little clarity on how these issues will play out.
So it’s inevitable that the ‘post-RDR world’ – such as it is – will remain the principal way of describing advisers’ environment for the foreseeable future. As with another changing of the guard that will take at least a couple of years to enact, there are still far too many questions to answer before a fresh start can even be considered.
dan.jones@ft.com
