RDR debate has a long way to run but IFAs must be realistic

16 Dec 2010

Yesterday's meeting of the All Party Parliamentary Group on Insurance & Financial Services to discuss the implications of the Retail Distribution Review for Independent Financial Advisers attracted alot of interest from MPs as well as a full public gallery.

It heard from four different perspectives but there was an underlying consitency around their messages : RDR is going to happen and happen largely in the form now proposed. There were, of course, differences about the detail and, especially from the IFA representative calls for the Financial Services Authority to review some of the important details.
Those presenting to the MPs were:

Stephen Gay, Director General, Association of Independent Financial Advisers

Sandy Scott, Chief Executive, Chartered Insurance Institute

Dominic Lindley, Principal Policy Advisor, Which?

Sheila Nicoll, Director of Conduct Policy, Financial Services Authority

This meeting actually gave MPs a more balanced view of RDR than their own debate at the end of last month when the fierce lobbying by some smaller IFAs produced a very one-sided debate. There are IFAs strongly committed to RDR and obtaining their Level 4 qualifications and this was an opportunity for their voices to be heard. With around 89% of IFAs already on course to reach the requirements this is an important group. It was especially interesting to hear AIFA's rejection of the calls for 'grandfathering' of experienced IFAs into the new regime without having to take the new qualifications. This had been one of the most prominent themes of the November debate. Stephen Gay claimed that MPs would have many more emails and letters from angry IFAs if grandfathering was allowed, firstly because they would resent people being allowed to get away without having to take and pass the qualifications and, secondly, because it would also mean that experienced bank and other tied advisers not popular with IFAs would slip in too.

The meeting was also important because it heard the consumer viewpoint that was strangely absent from the debate in the House. While Which? praised IFAs over tied advisory channels it made clear that there was considerable scope for improvement if the sector was to move on from the dark days of mis-selling and enter the bright new world of genuine professionalism.

Did all of this persuade MPs like Harriett Baldwin, Mark Garnier and Heather Wheeler that all is sweetness and light with RDR? No, far from it so the debate will run for sometime yet in Parliament. We have the Treasury Select Committee set to take evidence and produce a report and we have already seen the FSA get in with a blunt opening salvo on that front. This enquiry will produce a report that will also be debated in Parliament and which, unlike the November debate, will probably lead to a vote. Just because nobody apart from Treasury minister Mark Hoban rushed to the defence of the FSA and RDR in the last debate shouldn't lead to the conclusion that a vote on a Treasury Select Committee report (which may or may not come out against RDR or certain features of it) will result in triumph for the opponents of the perceived harsher aspects of the regime. If there is any real danger of that happening the government whips will be out to ensure it doesn't. They will have their work cut out, however, judging by the success of the lobbying that has been done to date.

IFAs do have a chance to extract some concessions from the FSA and the agenda put forward by AIFA looks sensible, realistic and achievable. Of course, it is not backing those IFAs fighting a broader front against RDR but it has them to thank for the fact that there is a fresh engagement with their agenda. Indeed, I would go as a far as to say that the whole industry owes the anti-RDR IFAs a debt of gratitude as there have been very few times in the 25 years plus I have been covering the financial services sector and its relationship with Parliament when so many MPs have been willing to attend and speak in a debate on an issue of genuine concern and importance to the industry. When it has happened in the past it has usually been because of some serious failing on the part of the industry - Equitable Life, pensions mis-selling, the endowment scandal and so on. But then, those issues are the reasons why we have RDR in the first place and why it shouldn't go away.

Topics: Treasury Select Committee, RDR, IFAs, Financial Services Authority, Chartered Insurance Institute, All Party Group

IFAs drive RDR concerns up the political agenda

10 Dec 2010

One group certainly took the advice I offered last month about doing more to connect with MPs and Parliament and it has paid off already.

Independent Financial Advisers up and down the country have been lobbying hard to bring MPs' attention their many concerns about the progress and implementation of the Retail Distribution Review. A few months ago you would have said they were wasting their time as all the arguments had been heard before and had failed to shift the Financial Services Authority from its chosen course. A combination of IFA perseverance and alot of new MPs still keen to engage with businesses in their constituencies has produced a result that few, including the FSA, expected: RDR back on the political agenda with the resultant pressure on the regulator to re-think some of its proposals.

The big break though came a couple of weeks ago when the Conservative MP for Wyre Forest, Mark Garnier, secured a two hour debate on the floor of the House of Commons. Over 40 MPs from the three main parties spoke in this debate and about twice that number attended it, both unusually high figures for such a narrow, specialist topic. There was very little disagreement among the MPs about the need to re-visit RDR. There was alot of focus on grandfathering rights, concern about the amount of time required to compete the new qualifications, the costs - put at £1.7bn, the rigid requirements on fees and the fear that many experienced IFAs would leave the market. This was estimated by Mr Garnier at as many as 10,000, a figure not disputed during the debate. It was a scenario that alarmed many MPs from rural constituencies who feared that IFAs could become as scarce as Post Offices.

These concerns did not get alot of house room from the government as Mark Hoban, the Financial Secretary to the Treasury, largely defended the FSA and the RDR, although he did try to offer some reassurances on where the costs would fall. He did, however, acknowledge that this issue is now firmly on the political agenda. The Treasury Select Committee has said that it will take evidence on the subject very soon which will ensure it remains very much a live political issue.

In the meantime, the All Party Parliamentary Group on Insurance & Financial Services will also be examining the issues raised by IFAs at its last meeting of the year next Wednesday when it will hear from the Association of Independent Financial Advisers, the Chartered Insurance Institute and the Financial Services Authority. The meeting takes place in Committee Room 18, House of Commons at 4.30pm on Wednesday 15 December and it is open to the public.

Two months ago I would have said there was no chance of re-opening this debate and even less of changing the FSA's mind on any of the issues. Now I am not so sure. I think if IFAs keep a tight focus on two or three key issues they could win some concessions. The trap I see looming is that some IFAs are in danger of getting abit gun-ho and seem to think that they now have a chance to force the whole RDR back to the drawing board. They don't. What they do have is an opportunity to limit the more draconian aspects of RDR and, crucially, reduce the financial and administrative burden on them and their business. They just need to keep focused on objectives that are achievable.

Topics: Treasury Select Committee, regulation, IFAs, FSA, Chartered Insurance Institute, All Party Group

EU offers best hope of RDR delay and rethink but banks special pleading doesn't go down well

29 Oct 2009

Up to now, I have been extremely skeptical about the prospects of delaying or substantially altering the Financial Services Authority's Retail Distribution Review. The whoops of delight from many independent financial advisers when the Conservatives announced their intention to abolish the FSA and split its responsibilities between the Bank of England and a new Consumer Protection Agency seemed to me to be naive. There has just been too much miss-selling of financial products over the last 20 years for an overhaul of sales processes, clarification of status and reform of remuneration not to be necessary.

The RDR, however, is far from perfect and alot of those imperfections were aired at a packed meeting of the All Party Parliamentary Group on Insurance & Financial Services yesterday afternoon. Committee Room 17 in the House of Commons was full. Over a dozen MPs and Peers from all three main parties were there (more than you get at many Select Committee hearings) and the public gallery was full of interested observers, including political researchers, trade associations, companies and the press. This is an issue that engages alot of people.

Presenting their views on the RDR where Which?, the British Bankers Association and the Association of Independent Financial Advisers and, as you would expect, there were plenty areas of disagreement which will be well reported elsewhere. Two points seems worth pulling out at this stage, however.

Firstly, the BBA put in its plea for a new term to replace the proposed category of "restricted advice" which describes those firms that offer only a limited product range, often just their own. It complained that this is a pejorative term that could put off consumers. This view found little favour among the MPs and Peers, summed up well by the Labour Peer Lord (David) Lipsey who said: "The superiority of the independent advice remit must be made clear to consumers ... you are lucky that you haven't been told to call it sales because that is what it really is".

Secondly, the prospects for a wider review of the details and timetable for the 2012 implementation of RDR drew a surprising cross-party consensus and this centres on Europe. There is already confusion surrounding the details of the Markets in Financial Instruments Directive (MIFID) and the issues that are causing concern are likely to be further muddied as the promised review of the workings of the Insurance Mediation Directive (IMD) kicks in next year. As the group's chairman John Greenway pointed out, it is only the UK that has this sharp regulatory separation between life and general insurance and whatever Europe decides to do in reviewing the IMD will have an impact on the retail financial services sector. So, he argued, we should wait until that review takes place before firming up the RDR. This view was strongly endorsed by the leading Liberal Democrat Peer Lord Clement-Jones and the group's Labour deputy chair, Baroness Turner.

What was impressive was to hear from AIFA that it has sent a delegation to Brussels recently, showing that it understands how these complex multi-national political processes work. They came back with the view that the European Commission stills views MIFID as "embyonic" and is looking to the review of IMD to inform the MIFID debate. The dots are being joined up and, as they are, it looks as if the future of the RDR is rather more in the melting pot than some of us initially thought.