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Well, will Mr Sants want to know what IFA clients think about RDR?

23 Jan 2012

He has been sent a copy of the report but I suspect that he may not like what he hears. However, he should remember the words of Winston Churchill who said, “Courage is what it takes to stand up and speak; courage is also what it takes to sit down and listen”. 

We conducted our survey over a two-week period in December dealing with, in particular, the attitude of clients of IFA firms toward the RDR.  The key finding is that the general public does not understand and are just not ready to engage with a fee only advice regime.

The results cause me considerable concern so I have shared them with Hector, Mark Hoban, the chairman and key members of the Treasury Select Committee plus the ABI and AIFA.

Whilst it would be possible to dismiss some aspects of the survey, as well as some of the methodology, the responses and results do carry weight because of the strength of response and depth of comments.

It appears that the issues raised have not been addressed in either FSA research to date or their awareness plans.

In fact the results of this survey are so alarming I must ask why the FSA has not conducted similar research with IFAs or their clients and why they appear to have no visible plans to "educate” the public about what you have created.

This survey poses three very simple points to ponder:

  1. Why has the FSA not carried out similar research with IFAs?
  2. Why have they no plans already in force to educate the public about what is to happen in less than 12 months time? It is not the responsibility of IFAs and it is not the responsibility of provider firms or trade bodies to undertake that task.
  3. This would be a compelling, most face saving and valid reason to delay - as recommended by the TSC.

With consumer attention being diverted by domestic economic matters and the distraction of the Olympics the FSA have little time to act.

The point this research reveals is that there is an awareness creation problem, rather like making seatbelt wearing compulsory, the digital switchover, the dangers of Rabies, binge drinking or having unprotected sex on holiday and that requires a sponsored message from the FSA to tell the public “this is how it will be in future” and not from provider firms or IFAs.  

No doubt Sants will argue that this is a job for the Money Advice Service.  But that appears to be setting itself up as some kind of honest broker service. 

Our survey is all about preventing consumer detriment by digesting consumer perceptions, understandings and appreciation of the RDR from those who know them best their IFA.

On all counts it is clear that what the RDR will produce for the masses, unless some sense of reality is brought to bear, is the most spectacular case of consumer detriment in the name of regulation, by the hand of regulation that anyone has seen since the OFT decided that the MCA (Maximum Commission Agreement) was anti-competitive.

The message to Mr. Sants is clear. Please listen, learn and above all act now before it is too late for Mr and Mrs Average that is if the FSA actually cares about them ahead of their own egos and agendas.

The survey saw some 741 respondents and the results, with comments, stretch to over 150 pages. The document makes for compelling reading.

Some key facts to digest

  1. Over 93% of IFA clients do not understand what the RDR is and the benefits it is supposed to bring them.
  2. Only 20% know and understand that they will have to personally pay for IFA services with no commission option being available.
  3. Alarmingly, 85% of IFA clients do not understand the difference between the new interpretation of independent and non-independent advice
  4. 61% of IFAs need help in educating clients about the impact and effects of RDR
  5. Not surprisingly 93% of IFA clients would prefer a commission choice remain available to allow the client to decide which remuneration model suits them best.
  6. Amazingly only 1.1% if IFA clients see qualifications as being valued most. Face time and experience is what matters according to 90%.
  7. Only 18% of IFA clients see value in being better qualified
  8. 61% of IFAs see they will lose clients as a result of fees being the only way.

So will Mr Sants be surprised? He certainly should be along with all those who have concentrated so much on driving through a process that, if this survey is to be believed, has so far manifestly failed to consider the basics of the relationship consumers have with their IFA.

This survey also addressed IFA readiness for RDR and how their plan to align their businesses with the RDR requirements was progressing.

This element of the survey has painted an interesting, often very positive picture but within lays some disturbing evidence that again we think should be considered by the FSA, ABI, trade associations and accreditation bodies.

  1. 57% of respondents said they would be RDR ready by the end of 2012. 26% were not sure and 17% said they would not be.
  2. Interestingly, 66% said they would remain independent and 22% said they would be restricted.
  3. Alarmingly only 20% had segmented their client bank with 30% saying they had not, for 38% it was ongoing and very sadly 10% did not know where to start!
  4. Now FSA, think about this. 47% of IFAs responding would consider moving their business to an EU state and passport back in to the UK if it was to be a viable option.
  5. Very sadly 94% of IFAs said they had no confidence in AIFA influencing the FSA any more.
  6. 75% said that the removal of trail commissions by way of a ban would deliver a death blow to their business
  7. 63% of IFAs would operate a restricted model if MIFID 2 allowed for it.

Our respondents come from all over the UK, including Wales (apologies for the oversight in the survey). The age demographic and their time in the industry show that the opinions and views are made with the considerable benefit of “time served” experience.

So what next for the next 11 months?

The late Steve Jobs was on record as saying about Apple technology products “this is what customers pay us for - to sweat all these details so it's easy and pleasant for them to use our computers. We're supposed to be really good at this. That doesn't mean we don't listen to customers, but it's hard for them to tell you what they want when they've never seen anything remotely like it”.

The FSA should now see that they have not listened to the consumer, in fact they have not really tried to engage with them at all if our survey is anything to go by.

Why not?

Action is required now and that starts with at least creating consumer awareness and that is not the responsibility of anyone else except the FSA.

So as Steve Jobs might have said “Hector, sweat all these details so it's easy and pleasant for consumers to get the advice they want, from who they want and possible even let them pay them in whatever way they want, they've never seen anything remotely like RDR and I suspect they may not like much of what they see”.

Click here to read the survey summary.

To access the full survey results and comments, click here and log-in with your Unipass or type in your Panacea account details . If not registered, follow the simple free registration prompts. The full report, with comments, is essential and thought provoking reading.

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Comments (7)

a number of observations
1. RDR is so far down the road and ever since sants accepted his two new jobs, one at the BOE and the other in Europe the will to seriously take on advice from anyone has flown out of the window. After all if you had resigned your job and was working your notice until you could join your new employer would you be motivated to deal with circumstances that still needed solutions?
2. Money advice service. What a joke. The mantra that this is a generic service flys in the face of the word "advice" in the title. People come to IFAs for advice, not a regulator or a self imposed quango. If the FSA can really accept that this "service" can be a solution to the country at large why is it that they have made so many people redundant leaving 20 to shoulder the demand.

We are about to shoulder a system that IFAs don't want, that customers regard as less important than good solid trustworthy relationships with their IFA, qualified or not, that the FSA have by their own admission been so heavily committed to that the RBS scandal, costing the taxpayer a loss of £25bn because the regulator took their eye off the ball for at least the 3rd time since 2008. God help us. I am in the restricted camp as of Jan 1 and the sooner I have my Plan B, currently in its development stages, that can replace this loss making FS enterprise the better.

callomon1   24/01/2012   08:54
I am a sole trader, directly regulated, unincorporated IFA. So I guess I’m the smallest form of pond life.

However I have to say I find this so called research facile and practically valueless. I would not be at all surprised if those who you seek to influence with it ignore it entirely.

1. Do you really think that a response rate of fewer than 800 is truly representative? Just filling the document with innumerable complaints hardly constitutes robust research.

2. What was the makeup of the respondents? Network? Non-Network? Income groupings? Length of time in the industry? Qualifications held and for how long? Demographics and geographics? I see that towards the end of your piece you say that views are made with the benefit of ‘time served’ experience. That isn’t what counts. Just because you an old fart (I qualify on that score) and have been around a long time doesn’t necessarily make you a good adviser. Experience is not just time serving – what have you done apart from financial services that gives you ‘depth’? Are you solvent? Do you own what you advise your clients to take? Are you as fully up to date on all issues as you might be? Investment and economics? Pension legislation and changes? Taxation and legal matters appertaining to finance? And so forth. Or have you just been rolling out the same old stuff for the past 20 years?

3. Then the clients – income groups? Educational backgrounds and occupations? All of this is relevant. If a company director or solicitor (as clients) were asked what they thought about qualifications you may have received a different answer.
Then we have the main pint – why should clients even care what the RDR is about? All they are concerned with is do they get decent advice and what does it cost. Do you ponder international emission regulations and standards when you buy a new car?
You assertion that clients will have to personally pay for advice is both disingenuous and misleading. The Regulator has gone to great lengths to explain and permit adviser charging and in effect this is hardly different from commission. The only way it differs is that unlike commission it cannot be fudged or hidden.

Likewise the implication that all trail commission is to be banned is just plainly untrue and indicates that either you or your respondents have just not bothered to read the rules.

I will however concede one relevant point and that is the understanding and perception of the new ridiculous divisions between independent and restricted. This is truly a dog’s breakfast, but you hardly needed research to establish this. It is self-evident – even the staff at the Regulator have trouble with the concept.

Out of your 94% who have no confidence in AIFA how many are actually directly members paying the full subscription? (Unlike those who have it highly subsidised through a Network)? I think it would be fair to say that on average non-network members may value AIFA a little more highly. That is not to say that this body doesn’t have room to improve – they know it and are trying to address the problems. Anyway if not AIFA then who? (Being brutally realistic!)

Then the biggest howler and non sequitur of all displaying breath-taking ignorance. 47% of your respondents (NOT all IFAs) would consider moving to an EU sate if it were viable. Precisely – if it were viable. It isn’t for the vast majority of small firms. Most display an alarming lack of comprehension of their own regulatory structure – one wonders how they will cope with a different one? Presumably they refer to an English speaking jurisdiction? (How many speak and write another European language fluently?) Again if they had bothered to read the rules and see the hurdles that can easily be put in their way they wouldn’t have been so crass as to even mention this point. Anyway your rider “if it were viable” makes the whole point moot.

I don’t disagree that there is an awful lot wrong with the RDR and that our Regulator is severely lacking in far too many respects, but if you want to be taken seriously you need to carry out some professional, robust and definitive research instead of what this is – the usual whinge.

Harry Katz   24/01/2012   09:32
"Facile and practically valueless", I would strongly disagree Harry, if it was you would not have "wasted some" 700 words, or would you? And under 800- a cynic might be forgiven for thinking that this research carries more weight by way of numbers and observations than the survey the FSA did to embark on the process? Have you read the comments?

cortesin   24/01/2012   10:32
Harry makes a number of assertions and observations in his inimitable way.

The 800 respondents is a higher number than the vilified Australian survey that the FSA sought to use as proof that higher qualifications - better advice. It is also higher than the numbers of respondents to any of their 'consultations'.

Another area worthy of comment is this view that only AIFA members are entitled to comment on its effectiveness. Perhaps Harry and other Council members should consider that it is exactly this dissatisfaction that has caused them to resign or not join in the first place.

Unlike Harry I have looked into the potential to passport in from other climes and can confirm that I have yet to find a more odious, highly regulated, foolishly regulated environment than the UK. It is unsettling to consider that we in the UK have always prided ourselves on being more benign and forgiving than 'Johnny Foreigner'. We regularly sneer at third-world politics and revile those regimes that remove human rights with impunity. However, a close look at what is going on here would alarm the traditionalist and make him reach for his ECHR brochures.

Alan Lakey   24/01/2012   11:24
Harry, you say you are a sole trader, directly regulated and an unincorporated IFA! You must be making a mistake. Surely you at least trade as an LLP? But if not then your judgement must indeed be impaired. Your liability will follow you to the grave!

On the second point do you really think that a response rate of 800 is not representative?

I recall the FSA CP121? When the FSA looked at depolarisation and fees they we quite happy to use only 3 research companies - NOP, IFF and ORC. ORC, who produced the research on probably the most contentious areas "Potential Purchasers" and "Fees and Commission" they based their research on?? Go on Guess? 20 interviews!

So on that basis 800 looks quite representative old boy!

Simon Mansell   24/01/2012   14:00
Let us now concede that 800 is representative – to end that particular discussion.

However I don’t see comment on all the other points that make this so called Research more histrionic than scientific.

Of course I was prepared to contribute a lengthy piece – if nothing else to ensure that a different point of view is aired. And if you are going to comment - comment with as much precision as possible.

As to my comments concerning AIFA perhaps that too was (purposely?) misconstrued. Out of the sample of 800, 94% say they have no confidence in AIFA. For those who are unfamiliar with statistical research – how many of the 100% are or recently were members? Or put another way out of the sample how many never were members at all? That would put a different light on the findings.

Simon, I am surprised at a lawyer. It wasn’t that long ago that stockbrokers, solicitors, accountants Lloyd’s members and all manner of professionals were unincorporated with unlimited liability. In those days rather better standards were the norm as people knew that they personally stood by the advice. If it were more prevalent today perhaps we wouldn’t have so many ‘scandals’. It rather does concentrate the mind I will admit! Anyway under current company law (as I understand it) LLP partners and directors can still have to ‘carry the can’ personally in several circumstances.

As to passporting – if it is so attractive and easy why hasn’t anyone done it? I’m the last person to be Xenophobic and am well aware of the UK habit of Gold Plating. Indeed I’d ship the whole works to Brussels and shut Westminster, Canary Wharf and all the other jobsworths and bureaucrats down. What strikes me as peculiar that we now have the most Eurosceptic people lauding the European regulatory structures - all I can say is welcome to the USE.

In conclusion it is ‘research’ such as this which in my opinion does us no service at all and merely classes us as a bunch of whingers.

It all needs (in my view) to be a lot less emotional and backed up by unimpeachable and robust statistics and analysis. Just because the Regulator produces naff research doesn’t mean that ours has to be equally as poor.

Harry Katz   25/01/2012   11:17
Just a very simple observation on my part.

Are all the IFA responses purely their own view or have they even considered starting to correspond and discuss the changes with clients? I fear many are simply guessing at what their clients views are!!

We have been operating with an RDR ready adviser charging (I do not use the word fee) model for nearly 12 months now and I certainly find that most clients find it far easier to understand than the old commission model, where a number of responses here rightly point out that the client still pays, they just never knew it!

The new model splits out cost of advice, research and implemantation and then ongoing service and product costs in a very imformative and transparent way. My new clients embrace it and are far more comfortable with this approach, albeit many are still paying the same way as before, an adviser charge from the product for implementation and ongoing service.

Its like anything else, over the years the minority spoil it for the majority, we have what we have, and now lets get on with it. Those who have hidden behind the expression 'our advice if free we get paid by the provider' will either 'comply or die' (good horse that!!). Embrace the changes, and in a few years time those that do will look back and realise we should have done it years ago.

Andy Holder   26/01/2012   13:29


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