From South Africa to Australia: the research behind the RDR

It's hard to believe that any sentient being would regard better qualifications in a professional firm as anything other than a very desirable objective.

Australia implemented its equivalent of RDR over 20 years ago and today has a significant IFA industry which is generally now looked upon by the public very well. Surveys that try to capture the publics 'respect' for various professions show that IFAs have risen in the public's view consistently over 20 years.

Some of this is due to a tough regulator who has put a few IFAs behind bars and fined others out of existence. However it hasn't been without some unintended and not particularly good outcomes.

IFA groups or dealer groups as they are known in Australia must be able to show that their research of investment options and vehicles is sound and professional, this has lead to a small no of specialist research houses having a monopoly in the provision of investment research. This is turn has lead to very high barriers of entry for fund houses, without a research house rating you are completely unable to sell your funds in Australia.

I hope this will not be a feature of how the UK fund market develops post RDR.

Once again, this fails to provide any support for the FSA's position that stockbrokers and investment managers should be treated the same as IFAs. The roles are fundamentally different.

Examinations do not measure knowledge of the markets accumulated over years. An IFA might need to update their knowledge of products but private client investment managers are constantly expanding their knowledge by following markets, companies and funds.

The FSA seems to have little understanding of what stockbrokers and investment managers do and instead seems to be intent on creating a homogenous class of 'wealth managers', which will prove easier to regulate.

On the 22/06/11 Hector Sants (FSA) told the Association of British Insurers’ biennial conference in London that RDR will not prevent people from getting financial advice!

Earlier this year on March the 9th 2011 Andrew Tyrie MP (chairman of Treasury Select Committee) asked Hector Sants (FSA) if he knew the definition of negligence. Sants hesitated at this question so Tyrie went on to explain that the FSA is immune from actions in negligence and also immune from acts of gross negligence. Tyrie then asked Sants if he knew what gross negligence was. Again Mr Sants hesitated so Mr Tyrie continued in his explanation.

Tyrie explained that the FSA was immune from actions of negligence and gross negligence and that gross negligence was being recklessly stupid over the outcomes of its reckless stupidity!

So when Sants says that the RDR will not prevent people from getting financial advice is he correct or is he stupid or could he be recklessly stupid over the outcomes of the FSA’s reckless stupidity? Which is it to be?

AVIVA Life marketing director David Barral has said his firm predicts by 2013 IFA numbers will fall to 10,000 in total as advisers fail to comply with RDR changes, leaving middle-market consumers unserviced. As a result Aviva wants to grow its tied in-house channel to target 2.7 million ‘orphan’ clients whom were originally IFA clients.

So Mr Sants appears to have miscalculated by a sum of 2.7 million orphan clients! On the other hand AVIVA has spotted this 2.7m opportunity. So who is being stupid AVIVA or Sants?

Is it not recklessly stupid for the FSA to disenfranchise in excess of 2.7 million orphan clients from their independent adviser and then suggest to the ABI that RDR will not prevent people from getting financial advice?

So then how can this be allowed to happen? It can be allowed to happen because The FSA is not accountable to Treasury Ministers or to Parliament, as confirmed by Hector Sants at a Treasury Select Committee meeting on 9 March 2011. Sants told TSC Chair, Andrew Tyrie, that Parliament needed to legislate to remove the FSA's non-accountable status. This was further confirmed by Mark Garnier MP who, when commenting on the FSA's negative reaction to a Treasury Select Committee (TSC) report on the RDR, stated that if the FSA chose to ignore the TSC there was nothing they could do about it.

Lenin once said that if you tell a lie often enough it becomes the truth. So we must all be vigilant and if we fail to speak up then we are the ones who are being recklessly stupid over outcomes of the FSA’s reckless stupidity!

Research based on just two surveys of just 53 consumers, 13 and 16 years ago, in a different country, and with an unrepresentative case study. I was not aware of this detail before today. Strange how the FSA seems to have kept this info very much out of the public eye.

On the basis of this we need to completely re-organise the UK Financial Services industry, lose thousands of jobs, spend millions of pounds, leave millions of clients disenfranchised.

If I wasn't crying I'd laugh, but I suppose Hector is doing that anyway. Reckless stupidity doesn't do it nearly enough justice.

Hector Sants says: ‘The question is, is this a significant improvement in the round on where we were? We believe it to be. We believe we have good, solid evidence to that effect and that is why we should go forward.

However, a cross bench committee of "elected" MPs did not agree and considered the FSA evidence to be rather week!

This is not the basis to launch, a £3.55bn experiment, especially when initial FSA costing in 2008 were £600m rising to £1.7 billion 2010/11, now rising to a new 10 year estimate of £3.55bn!

RDR will put 20/30% of advisers with an exemplary complaints record down the toilet at an estimated cost of £3.55bn and all based on evidence that is rather week! The lunatics must surely be running the asylum and I just can’t understand why impartial journalists are not more inquisitorial in their interrogation of the facts?

I showed this correspondence to a fully qualified chartered accountant. He said 'you should all be properly qualified. I would not deal with you if you took the attitude expressed in this email exchange'

I showed it to members of our staff all of whom are currently working on level 4 exams. One of them said, ' Dinosaurs!'.

i showed it to one of my co directors. He said, ' we just wouldn't employ anyone with that attitude.

over to you guys.

Paleontological tell us that the first dinosaur dates back 240 million years ago and that they died out about 70 million years ago. So perhaps the analogy is not such a good one to use.

Of course this all rather dependent on how and who defines professional. You see if you go and ask a Left Brian Accountant he will give you a left brain answer. The skills that make a good IFA have more to do with right brain activity. Left-brain scholastic subjects focus on logical thinking, analysis, and accuracy. Right-brained subjects, on the other hand, focus on aesthetics, feeling, and creativity, the very skills that make a good adviser.

The ultimate tragedy of this approach is as Oliver Wendell Holmes said: “That many people go to their graves with the music still in them”. In our case 20% to 30% of highly professional advisers will not achieve examination success as defined by a left brain elite. In this day of enlightened educational understanding we should be beyond this educational apartheid where we understand the value these very rare skillsand that they cannot be assessed in an examination hall.

@ Stephen Clifton

Ask your Chartered Accountant if he would like to sit his exams again, with the result that if he passed, he stays in business, and if he fails, he is out of a career. And pay for the privelege of doing so.

There are not too many who really argue against qualifications, we have had them since 1996 or so, when the requirement to be FPC3 qualified was introduced. And I speak as one who is already over the FPC4 hurdle at the first attempt.

The argument is about the way it has been imposed, with no proper consideration of the experience and demonstrated capability of any individual adviser, nor the consequence of disenfranchisement and loss of access to advice for millions of clients.

My point above is that such massively sweeping changes have been implemented on the basis of outdated, unrepresentative, miniscule sample data that has no bearing on the mass market in the UK.

Would your Chartered Accountant friend like to have the course of his career and entire business dictated by a sample of 53 Australian "consumers".

Sledgehammers and nuts come to mind when considering the FSA view. Everything they wish to achieve could have been arrived at much more simply, cheaply, and with better customer outcomes than the route they have chosen, but that's bureaucrats for you.

I think it's right that the FSA get tough on qualifications and regulation. There must not be any place to hide when it comes to the provision of advice to members of the public.

If the qualifications are too tough for these able and so called 'good advisers' then I have question how committed they are to being professional. I'm sure there were many barbers and other meat choppers that failed to pass the original exams to become surgeons!

Martin Harris you are wrong! You are missing the point altogether Martin. In a common law democracy retrospective application of rules i.e. asking advisers to requalify is fundamentally wrong and especially wrong when it is at the dictat of an unelected member of the executive that is not accountable to parliament or the judiciary. The issues are far greater than financial services. The rule of law is not an abstract concept. It is of vital importance to all of us all of the time: it underpins our essential values and freedom. Of course, the law can be changed for the future – but not retrospectively. No one is complaining about the raising of standards but this is not what the FSA is doing! It is saying that it will not permit IFAs who are currently qualified and authorised under Financial Services and Markets Act to continue to practice under the future new rules unless they requalify!. Such powers are unconstitutional and dangerous and now we even see the FSA (unelected) telling an elected TSC to go whistle. What I really fail to understand is why so few people (and Citywire) fails to value those rights that two world wars have been fought over?

The reason why Martin is RIGHT is that the current required qualification level is inadequate for the job we do. You have had getting on for 5 years notice of the change. If only you had put half the effort into requalifying that you put into this complaint ..... both you and your clients would be better off.

Stephen I think you will find that the FSA announced the level 4 requirements around Dec 2010, hence the JO exams did not meet level 4 and we have all this gap filling.

You also make the incorrect assumption that one can't be opposed to aspects of RDR and at the same time study and qualify for level 4. In fact I did and I have.

Now if you were to address the concerns I have made and consider the impact of retrospective rules applied by an unelected member of the executive then I'd be interested to hear your argument and debate your views.

I am not anti regulation, education or all aspects of RDR. I am however against an abuse of power. You risk oversimplification of the issues. Every professional needs to keep up to date with relevant developments. Formal requirements imposed on existing members of a profession to undertake courses designed to keep members up to date are acceptable and are part of a profession’s seeking to maintain standards. But that is not the same as requiring an individual to requalify for membership of the profession because new entry requirements have been introduced. New degree standards for NHS Nurses being applied to new Nurses but not existing Nurses is a good example of how things should be done.