Retail Distribution Review
Written evidence submitted by Allan Young
I write in the hope that you may take some account of my words in bringing about some changes to some aspects of the Retail Distribution Review.
I joined the industry in 1983 working on a commission only basis for a firm called Manufacturers Life. Previously I had been an accountant, in industry not in practice. I was 31 years old at that time.
When I joined the industry there were some 200,000 or so people involved in selling retail financial products and Britain had the healthiest Pension, Savings and Insurance schemes in the world. Over regulation in the last 20 years has considerably changed things.
The RDR means that I must now sit further examinations in order to continue to trade at a time when I must also build up levels of capital adequacy that are frankly unnecessary and anti-competitive.
I am now 58 and the thought of taking further examinations simply to obtain qualifications really does not inspire me and I must also change the way I am remunerated, moving from a commission basis to a fee basis. Despite the fact that my clients really do not want to pay fees and are and always have been happy that I receive commissions.
I am not opposed to change. I am certainly not opposed to increasing the level of competence in the Financial Services Industry, however, I believe that competence is the key word.
I undertake some 200 hours or more of continuing profession al development (CPD) annually. The target for the industry is 50 hours. Frankly I cannot see how anyone can possibly remain competent on only 50 hours of CPD annually. The changes we are faced with in taxation, pensions, budgets and massive changes in the investment world requires far more than that.
I like to believe I am a professional. I have no formal qualification beyond those required to practise, however, personal pride, a commercial imperative, and a desire to do the best I can for my clients means that I study long and hard to satisfy my requirements. I am not alone.
If I gain a formal qualification will it make me any better at what I do, or will it make me any more likely to transgress in terms of ethics?
Actually, I do not believe it will. Had I the inclination to be naughty, I rather think that by now I am likely to have been so. I could run much faster when I was younger.
I have sold, and yes I am more than happy to say sold, which seems to have become a dirty word, millions of propounds of life and critical illness insurance cover, hundreds of thousands of pounds worth of income protection cover and many hundreds of pensions, all potentially saving the state significant sums during the life of the policies and beyond.
In the nearly thirty years I have practised I have never received one complaint about my proposition and I believe my clients hold me in reasonably high regard.
FSA makes statements on the basis that if they make them often enough and loud enough they will become true. They say that better qualifications will make for a more robust advice platform and deliver better outcomes for consumers. They have not one shred of evidence to support this. Not one.
They say the removal of commission will remove product bias and create better consumer outcomes. Again, there is not one shred of evidence to support this and in fact a survey carried out on behalf of FSA some years ago proved this to be the case.
RDR is laudable in it’s aims. However, it’s strategies are flawed and the outcomes they desire will not be met by maybe 30% to 40% of the IFA sector retiring.
If FSA wishes to create better consumer outcomes there are better and much less costly way to do this.
They might for example insist that in order to practice one MUST belong to one of the trade bodies.
They might make that body or association responsible for checking the amount of CPD undertake by the individuals it "governs" with powers to suspend where appropriate.
They might regulate individual products (but that is too much like asking them to nail their cojones to the mast). Had this been done over the last ten years perhaps we would not be in the mess we are in today. This does not mean that unregulated products could not be advised upon, sold or marketed, just that consumers could identify a clear line of protection where there was a regulated products. EG Keydate and Lifemark, Split Caps,
Endowments etc.
In finishing, if I should elect to retire at the end of 2012, which I may, and if we assume for one moment that I am a decent, honest, hard working, ethical and competent adviser, how does that improve consumer outcomes (I modestly hope) and how does it improve consumer outcomes for the many thousands of IFA who may follow suit.
Allowing IFAs who wish to continue to practise, without qualification, but with proof of competence, will enhance RDR. It will not denigrate it.
Allowing clients to chose whether they wish to pay for our services via commission or fee will again enhance RDR (and consumer outcomes) and not denigrate it.
November 2010
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