Ivan Martin, Sesame Bankhall Group’s Executive Chairman, has responded to FSA paper 10/6: Higher levels of professionalism and greater transparency are worthy goals that we have always supported, even though they involve a significant amount of work for the advice profession that should not be underestimated.
We have embraced this because we believe that independent financial advice can make a real difference to people’s financial wellbeing and we welcome any move that enhances the British public’s perception of our profession.
However, the transition to this new regime has long been a cause for concern and this has once again been borne out by the FSA’s final rules. We firmly believe that the FSA’s current approach represents a missed opportunity that will reduce the British public’s access to expert, impartial professional advice, whilst also reducing the size of the advice profession and burdening it with additional and unnecessary costs.
We welcome the FSA’s decision to maintain commission for protection products and not to impose advice labels on advisers in this area. We believe this is a good outcome for consumers who will still have access to advice to help them fulfil their protection needs.
Adviser charging and factoring
We fully support the separation of sales from advice and the removal of any perceived provider influence, including the need for providers to monitor adviser charges, but the reality is that whilst people seek out debt, they still need to be persuaded to save.
Removing factoring support by product providers will have a detrimental impact on consumers and will lead to large parts of the mass market becoming disenfranchised. This will mean fewer people being able to access professional advice at the very time they need it most. We need to nurture and reinvigorate the UK’s regular savings culture, rather than stifle it further.
If we continue down the current path then we foresee a market where the number of people who purchase financial products will fall, rather than grow. This is likely to be compounded by a greater proportion of people who purchase products on an unadvised and unprotected basis. This would not be a successful or healthy outcome for the British public.
Cost benefit analysis
As borne out by many studies – and acknowledged by the FSA – people who receive professional financial advice recognise the benefits and trust their IFA. But rather than increasing capacity, the FSA’s own cost benefit analysis shows that industry costs will significantly increase and we will lose large numbers of firms (23%), advisers and revenue. More importantly, a large number of consumers (11%) will cease to have access to financial advice.
We see nothing within the RDR proposals that leads us to believe this advice gap will be serviced by other means; either through simplified advice or basic advice. We doubt that simplified advice can be economically offered at QCF Level 4, and we would have serious misgivings if qualification standards were to be set lower than for other advice areas.
We also doubt that, under current regulatory conditions, basic advice can be made attractive. Indeed we find it ironic that NEST appears to have come to a similar view by having to set its charges above the level allowed on stakeholder products offered by the industry.
We seriously question how the nebulous medium-term benefits referred to in the FSA’s cost benefit analysis will outweigh the loss of experienced and competent advisers in the short-term. If sectors of the market become uneconomic to serve due to the RDR then they will remain uneconomic unless the fundamentals of the market change at some future date. We see no evidence of this change in any of the RDR proposals to date.
We urge the FSA to introduce clear incentives that encourage new advisers to join the advice profession and help people to save for the future. We also call for a regulatory dividend that rewards quality firms that adhere to the new higher industry standards, and recognises the positive work that has taken place on previous regulatory initiatives such as embedding Treating Customers Fairly (TCF).
The RDR began with an objective to improve consumer access to advice, but this has now disappeared. Instead we are left with a set of proposals that appear to be focussed on minimising the risk of mis-selling. But given the relatively low level of mis-selling in the IFA community, we believe changes being made to protect the few will instead hurt the masses. People will still benefit from independent financial advice, and that is very important, but it will become the preserve of the wealthy and out of reach of even more people than today.
The net result will be a worse outcome for the UK population by disenfranchising a large section of society from the impartial professional advice and support they need to help them save on a regular basis. We live in a world where it is far easier for people to accumulate debt rather than to save and unfortunately we do not believe the RDR in its current form will reverse that trend.
After over three years’ work and millions of pounds of public funds invested in the RDR, we feel it is only fair to ask whether this was really the consumer outcome we were all striving for? In our opinion a better outcome would be more people saving for the future through greater access to professional independent advice, which is why we believe we have missed a huge opportunity.
Looking to the future
There is a long way to go and working together we can still build a strong independent financial advice profession that reaches out to more people than it does today. However, it is imperative that we get the transition right to ensure we have the capacity to look after the future needs of the British public.
Sesame Bankhall Group is actively supporting IFAs through the challenges of changing their business models and meeting the new higher professional standards. This work will increase, as will our efforts to lobby the FSA and other stakeholders on the public policy issues raised by the final rules.
Fundamental aspects of the RDR – such as adviser charging – still lack significant detail however Sesame Bankhall Group is committed to playing a lead role in the ongoing discussions about how our industry implements these changes.