After years of planning for the abolition of commission when the Retail Distribution Review is implemented from January 1, 2013, corporate advisers are now wondering whether it is time to take their foot off the gas.
Publishing its report on 16 June, chair of the Treasury Select Committee, Andrew Tyrie MP, said: “The FSA is right to reform the financial advice market. Given the past problems of mis-selling we welcome the banning of commission and the introduction of a clear market price for advice.
“However, the current timetable for reform risks putting large numbers of experienced financial advisers out of business. In the interests of consumers we are calling on the FSA to delay the RDR by a year to give advisers more time to take the qualifications and comply with the rules.”
The TSC’s goal is reducing the number of IFAs that will leave the market so choice and competition for consumers can be maintained.
The FSA may have turned a deaf ear to Tyrie’s plea to date, but the vocal support of the powerful TSC means chances of a postponement are considerably increased.
David Marlow, development manager, Creative Benefit Solutions, says: “The chances of a delay in implementation are definitely greater now than they were a month ago. I would put the chance of a postponement at 50/50 now.”
Meeting the deadline appears to be more of an issue for small high street generalist wealth managers than corporate advisers. But even in that sector, most seem on course to meet the deadline. Mike Kellard, chief executive at Axa Wealth says: “Nearly 50 per cent of IFAs were already qualified and at least 82 per cent expected to remain as retail investment advisers. The danger of postponing is it may send a signal to the market that we are not serious in our appetite for reform.”
The current timetable for reform risks putting large numbers of experienced financial advisers out of business
Ironically, while the corporate market only came within scope of the RDR two years after the individual wealth management sector, calls for a postponement here have been virtually non-existent, and support for Tyrie’s position is minimal.
“There are reason’s why you might want to do this a lot of people have not got their qualifications sorted out yet. And we still do not have full clarification of all the rules yet. But we are neutral on whether it happens or not,” says Marlow.
Perhaps a more common emotion is anger at a delay that could undermine well-laid plans. Michael Holden, joint chief executive of Lift Financial says he would be appalled if the FSA held back from pressing ahead with the 2013 implementation date. “I think it is despicable that people are even thinking of this,” he says. “We have worked very hard to get our business ready for the Retail Distribution Review by 2013 and the idea that they are even thinking of holding back just so commission-hungry cheats can get more money is dreadful. Our industry needs to get more professional and this is not the way to go about it.”
Kevin LeGrand, president of the Society of Pension Consultants, points out that the industry has known the RDR is coming since 2007. He is puzzled as to what the sense would be in announcing a delay now, as such a move would only encourage stragglers to take their foot off the gas.
“We understand that what is happening is very difficult and profound for a lot of the individual advisers involved,” says LeGrand. “But I am not sure whether we need to be back-pedalling this far out from implementation. Whether or not they deserve their reputation in the eyes of the public, it is there, and they want to see financial advisers that are suitably qualified. And this is also coming in when auto-enrolment is being implemented. It will be confusing for consumers if they see a postponement.”
LeGrand also points out that having a postponement may not help advisers wanting to keep receiving commission if it turns out that providers stop paying it after 2012 anyway.
But the TSC’s report piles yet more uncertainty on advisers preparing for 2013, something that is not generally welcomed.
“The TSC paper was a balanced piece of work and you can see their arguments. But advisers on the private client side have had plenty of time to get ready for this, and if you aren’t able to do it by the end of 2012, then the chances are another 12 months isn’t going to make much difference,” says Robin Hames, head