2nd June 2014

RDR - Let’s get the numbers straight

The purpose of the Heath Report will be to create a firm basis on which to assess what RDR has done for consumers and to discover if the regulator itself has inflicted detriment on consumers. The Heath Report does not seek to overturn RDR as a whole but we may seek to inform the discussion as to whether the changes envisaged to trail commission in 2016 would exacerbate an already poor situation. In particular we seek to give a voice to consumers who have been left behind by RDR.

There has always been a problem with the debate on RDR and that is the discussion has been bereft of reliable statistics - properly gathered and faithfully applied.

In a democratic society; it is essential that consumers, advisers and regulators meet “on the battlefield of ideas” armed with reliable information to make their individual cases. This openness has been demonstrably missing and replaced by deliberate opaqueness.

So encouraged by Panacea and others; I am creating the Heath Report which is going provide the statistics and analysis to attempt to answer two central questions.

• How many clients have been disenfranchised by advisers exiting the industry?
• And how many clients will be disenfranchised due to the changes in advice created by RDR’s fee based only system?

The Heath Report is seeking a number of advisers, both active and retired, who are willing to allow in-depth research on their businesses to create a number of case studies which will identify the true effects of RDR on clients. It is essential that consumers, in whose name these changes have been enacted, are given a voice and are not just abandoned as orphans.

There is no greater example of the current confusion than in the FSA’s appearance at the Treasury Select Committee on 9^th March 2011. The FSA witnesses claimed not to know the numbers requested despite being called to the committee for that purpose. When numbers were given they often added in advisers not troubled by RDR to water down the effect of their ideas. The end of the meeting dissolved into pure farce with confused MPs being encouraged to compare apples with pears... and carrots.

I have already completed some desktop research using published information. Taking the date of that TSC meeting and looking forward to the latest figures: Investment advisers in Directly Authorised IFA advisers have dropped by 1,071 and network members by 1,778 making an IFA total of 3,125 lost advisers. In addition, 5,396 bank advisers are no longer in their sector but how many of their clients are no longer being advised has yet to be discovered.

This total loss of 9.293 equates to an overall loss in the adviser establishment of 20%. Looking at the monthly numbers; it is clear that the total number of advisers exiting the IFA sector was nearer 4,000 as there has been a recent 800 influx, probably from ex-bank advisers.  Taking the 4,000 gross losses: how many clients did those advisers have? I have already issued over 200 questionnaires to advisers and early responses lead me to believe around 750 each - so if that is correct - potentially 4m IFA clients have already lost their adviser.

The ABI statistics office inform me that 12m UK consumers are deemed by them to be IFA clients but their figure does not include those consumers who only invest through unit trusts and similar non-insurance based products. So circa 33% of IFA clients no longer have an adviser. 

But I suspect that this is not where the big numbers are. Most of the post-RDR advisers are now working to a version of the New Model Adviser concept which suggests charging fees to the minority of clients willing to accept them but is generally unclear what might be done with the rest of the client bank. There is some evidence that most advisers are hard pressed to give a fee based service to more than 120 clients with the average rumoured to be less than 100.

We have 32,000 advisers in the DA/Network sector 32,000 x 100 = 3.2m clients serviceable within the current IFA capacity. So if we accept the ABI figure of 12m and if the new method creates a glass ceiling of 100 clients per adviser circa - 9m are outside the capacity of the sector with perhaps 4m of which are accounted for by exited advisers.

But whilst the numbers of regulated advisers are solidly definable both from the FCA and third party sources; the average size of client banks, the number clients of clients per post-RDR adviser and the total number of clients serviced by the IFA sector all need to be clarified.

With a year to go before the next General Election, politicians need to be given the opportunity to give significant thought to current Financial Services Regulation and the dangers to democratic accountability of having a regulator which has precious little political oversight.

In the last week, I have been making contact with a number of influential Parliamentarians and have discovered a considerable appetite for this type of activity.  I am sure we can interest members of the Treasury Select Committee as well as getting an adjournment debate on the subject. The Heath Report seeks to send out an interim report in late July and the final version on October

So how can the Panacea community help?

The Heath Report is seeking information from the adviser community on their numbers. There is a short questionnaire that can be downloaded from the website www.theheathreport.com . Please send in your results

The Heath Report also needs funds to complete the task. A group of industry leaders has provided the initial funds but more is needed. Details of how to fund can be found on http://www.theheathreport.com/funding.html

Regulation, RDR