RDR does NOT mean fees
2 Feb
How disappointing it was to sit in a room at the House of Commons and hear three senior members of the financial services world totally mis-represent the RDR to an MP.
To hear people who should know better state that, “The RDR requires people to pay fees to their adviser from their net pay” certainly got my goat!
I found myself having to speak up and say, to a clearly bemused MP who had little understanding of the subject, that the comments made were in-fact a “mis-representation of the facts”. It seems to me to be such a bizarre thing to have to do at this stage of the implementation of the RDR.
Every IFA surely knows by now that the RDR does not require a UK consumer of financial services to pay a fee to an adviser from their net pay.
I wonder then what the motive for saying such things is?
Is it desperation? A desire to cling on to the commission system perhaps because they lack the will power and change management skills to embrace the transparency that adviser charging delivers?
Is it simply that they have not read the reams of consultation and policy papers issued by the FSA?
Perhaps they have never made the attempt to understand that adviser charging is the new commission and actually if they wish they need not change much if anything about their business model?
Or is there something more sinister afoot? Is making such statements an example of a statement often repeated starting to take on its own life?
You see I have absolutely no problem at all with an IFA arguing his/her case that commission is a better alternative than adviser charging. I may disagree with their argument and they may disagree with mine – but at least we can have that debate.
When instead people mis-represent (knowingly or not) the argument then of course debate goes out the window.
When that misrepresentation is delivered to policy makers as a fact then perhaps I have the right to lose my rag a bit.
Whilst I don’t believe in an eye-for-an-eye, it must’ve been tempting, Nick, to respond in kind:
“RDR offers global peace, a cure for many illnesses, and will make more money for every man, woman and child in the UK as Mark Zuckerberg is making from his Facebook IPO!”
That’ll learn ‘em!
Alistair
RDR may well deliver world peace but I cannot agree with the rest of your list
Nick.
I think your comments in paragraphs 6 & 7 sum it up.
Most of the people I know with the same misconceptions about post-RDR charging are not only resistant to change, but they haven’t bothered to read the various papers from the FSA themselves, relying instead on what someone told them at a seminar/pub/golf club etc (delete as appropriate!).
I just hope the MP in question listened to you!
Gareth
I guess that is what wound me up! I just couldn’t understand how they could have got it so badly wrong. It wasn’t as if we were talking about an individual who worked on their own and was somehow out of touch with what is happening. These were senior people (at Executive Director level) of substantial organisations.
I think the MP in question was blissfully unaware of what was being said to him. Which in a way is worse because he may form an opinion based on this eroneous information.
Did he listen to me? Not sure, I suspect he thought I was the nutter at the dining table because I really was wound up!! (Not sure I did a good job because of the fact I was so angry)
More often than not, Nick, the passionate argument will have a far greater effect.
“Nutters” tend to be remembered far longer than “Exectives”, who I’m sure MPs will have to listen to on a daily basis. If that’s what it takes, keep being a “nutter”!
Gareth
You were right to say something but the MP’s remarks were more likely out of misunderstanding rather than malice. I disagree that adviser charging is the new commission and that some businesses only have to make small changes. Adviser charging and commission have many different characteristics. thankfully we changed our business model years ago.
Hi Nick
I enjoy reading your comments and ‘Brilliant with Advice’. I don’t always agree with you but that’s what makes life interesting.
Agree with everything you say here though, although it would be interesting to know who the three senior financial services people are? My feeling is that they were probably just ‘dramatising the situation’ for impact.
The worrying thing however is that when I talk to providers, on their own interpretation of FSA consultation papers such as CP11/26, they are very much in the dark or do not know yet what the situation is that they will have to prepare for and we’re only 10 months away. The delay of the platform paper is an bigger issue, where everyone is unsure of what the outcomes will be.
Surely you agree, never has one industry had to change so much, at one single point in time, with so little direction from the people who are asking it to change?
I feel a little bit for providers at the moment and can understand if they want to hold onto the old model, as I do think RDR is very easy for an IFA to implement, and much more difficult and expensive for providers due to system changes, new RDR friendly product launches etc. Increased competition through lower charges will indeed hurt providers even more,and Skandia for example have already said they think that they will need to reduce their charges by 40 bps by the end of the year, so I could understand why providers would want to hang onto the current system.
I have no issues in the main with RDR as it generally won’t change our business model, but greater and timely direction from our regulators is vital.
Nick
I agree there are differences between commission and adviser charging but on balance the latter is better for the intermediary/client relationship. Transparent, communicated and pre-agreed (by the way that is not to say that the majority of IFAs didn’t always fully disclosed commission- it was just a rogue few who abused it)
Phil
Yes a lot of change but if I think back over my 38 years in financial services (sounds like a prison sentence when I say it like that- you get less time for murder!!) it has always been dynamic and full of change. FSA 1986, CFP qualifications (was that 1994?) Disclosure regime 1995, depolarisation then repolarisation, SIB FIMBRA, LAUTRO, PIA, FSA and now FCA and PRA can you think of any year when there was not massive regulatory change?
I wonder too if direction from a regulator is ever anything more than vague and that it is down to all of us at the coal face to determine the real thrust of direction?
For the sake of clarity it was the MP who was on the end of the misdirection. I cannot name the financial services industry people involved because the meeting was under Chatam House rule
Adviser charging is much better than commission. But I disagree with the title of the article. RDR does (in part) mean fees (in the form of adviser charging). The MP’s were wrong in the sense that fees must be paid from taxed income. Obviously in some cases (i.e. when not deducted from a contract) adviser charging (or fees if you like) will be from taxed income.
You have to question the motives of some of these people making such statements to an MP.
A client focused, service led practice with a clear proposition will have no problem in explaining and implementing adviser charging to both existing and new clients.
A sales led organisation that frequently churns product to generate a new initial commission clearly has much to fear from the RDR, hence why even at this late stage they are trying to delay it’s implementation
I rather suspect that the people Nick refers to sit in the latter camp!
Nick
I am sure that there will be many who would argue that Adviser Charging is not “fees”. These will be the same people who argue that a) any amount expressed as a percentage of an investment and/or b) any amount not paid directly by the consumer to the adviser, is not a fee but instead a commission.
I actually have little time for the argument because I believe they are mainly about semantics other than I think any payment made by a client to an adviser should be agreed between those two parties without interference by a product provider and of course totally transparent.
At Informed Choice we charge a project fee for advice and adviser charging for implementation and review services. Those are the words we use but the delight is that we charge less today to our clients than we did in 2004 and we are more profitable. RDR works really well for our clients and us.
I completely agree with your comments. But the fact is RDR does mean adviser charging and adviser charging is a fee. Therefore the title of your article is incorrect and potentially misleading. The main point you make in the article is valid i.e. maybe MP’s dont understand the implications of RDR – but you should have chosen a more accurate title. The fact that MPs dont understand the implications of the RDR dont doubt is rooted in the fact that they are merely represting the interests of individuals in financial services. The premise that some IFA’s dont need to make significant changes to their business models is also wrong I am afraid.
Nick
Thanks but I am afraid you are missing the point. My article title is perfectly robust and I suspect your argument is with the IFAs who would disagree with you and who believe that adviser charging is not fee charging. (I guess they would argue that’s why it is called “adviser charging” and not “fee charging”).
If you feel comfortable referring to adviser charging as fee charging then I understand your point but not all IFAs do. Try posting an article on one of the mainstream industry newspaper sites claiming that adviser charging is fee charging and see the flack you will attract (Don’t do this by the way if you are anything other than very thick skinned because the vitriol will be awful!!) Unlike you and me there are many out there who won’t argue the facts and just “have a go”
Still at least we agree it is not paid necessarily from the net pay of the consumer which is what the MP was being told by the industry people I mentioned. And also I guess we are both onside as far as transparency is concerned
Regards