"Despite the severity of some of the results in the report, the survey of 1,752 advisers, representing over 50% of the directly authorised IFA firms, was dismissed as “unimportant” by the FCA"
It also comes to mind when recalling a speech by former Chairman of the Financial Services Authority, Callum McCarthy at Gleneagles in September 2006 on the so-called pillars of the RDR, outlined as follows:
1. an industry that engages with consumers in a way that delivers more clarity for them on products and services;
2. a market which allows more consumers to have their needs and wants addressed;
3. remuneration arrangements that allow competitive forces to work in favour of consumers;
4. standards of professionalism that inspire consumer confidence and build trust;
5. an industry where firms are sufficiently viable to deliver on their longer-term commitments and where they treat their customers fairly;
6. a regulatory framework that can support delivery of all of these aspirations and which does not inhibit future innovation where this benefits consumers.
Unfortunately these pillars didn’t quite stack up with the results of The Heath Report Two (THR2) which was created by adviser association Libertatum in 2011 to examine the consumer detriment caused by the regulator’s actions in introducing the Retail Distribution Review. To recap just a few of its results, the 23 million consumers that have historically accessed advice via IFAs and banks was reduced by 16.5 million as a result of the RDR. The RDR was also estimated to cost consumers £340m p.a., despite the FCA claiming the RDR would remove mis-selling, which was said to cost consumers £223m per year.
At the time of compiling the original Heath Report Garry Heath of Libertatum was clear that it, “did not seek to be a learned academic document but to assemble in one place a clear description of what RDR has created and suggest lessons that might be learned”.
But despite the severity of some of the results in the report, the survey of 1,752 advisers, representing over 50% of the directly authorised IFA firms, was dismissed as “unimportant” by the FCA when the Panacea team, Garry and Lee Travis, who is now at the PFS, met with the regulator back in April 2014.
It was at this same meeting that the FCA informed us it would issue an internal review early in the autumn which we expected to be in praise of the RDR. In the end, the FCA commissioned European Consulting and Towers Watson to produce and issue two lacklustre reports, which were quietly released in the week before Christmas to a distracted media - hardly the action of a confident regulator.
These reports suggested that there was “no evidence of consumer benefit” leaving the FCA to opine that the RDR’s “longer journey will benefit consumers”. With the Heath Report Three (THR3) due to be published toward the end of May 2017, it will be interesting to see if this has been borne out and if the RDR has been able to leave its bad start behind. The current situation certainly doesn’t bode well, with the advisory community barely having the capacity to service some 10% of UK consumers financial planning needs while the remaining 90% who do not want or cannot afford to pay for financial advice.
In the case of the RDR. only one of the six pillars stands - number 4. And as we all know you cannot build any sustainable structure on just one pillar. It just falls down. And the regulator has ensured that the other five cannot be built as the ground beneath it has been ruined by too much regulatory firepower. And that’s what brings us right back to Ben Tre.
In the Vietnam movie ‘Apocalypse Now’, Captain Willard, played by Martin Sheen, asks a seasoned vet while riding a helicopter over enemy terrain “why do you guys sit on your helmets”?
The answer could be the same reason why IFAs only have a 10% capacity for advice?
