Retail Distribution Review

Written evidence submitted by Christopher Bolshaw

Introduction

1. I am a branch manager of a national firm of stockbrokers, operating in more than 30 offices nationwide. I am 53 years old and have been in the industry for 23 years since 1987. For 10 years, from 1998-2008, I was partner of an independent stockbroking firm, and was the firm’s Compliance Officer as well as advising on and managing investments.

2. I fully support the drive to increase professionalism in the industry and I see minimum professional qualifications as a perfectly satisfactory and indeed necessary part of this process, and entirely appropriate for new and recent entrants to the industry. However imposing the same requirement on senior and very experienced advisers will have a significant and detrimental impact, because it takes no account of current responsibilities or experience.

3. Stockbrokers, more widely known nowadays as investment advisers and managers, are affected by the same professional qualification requirements of RDR, in exactly the same way as the more numerous independent financial advisers. Out of four experienced investment advisers / managers in this one office, advising and managing approximately £120 million of customers’ investments, three will be required to take the new QCF level 4 exam or lose our livelihoods after 2012. We believe that this is a disproportionate and inappropriate means of validating existing standards of advice, and believe the FSA should reconsider its refusal to allow ‘grandfathering’ of experience.

Executive summary

4. The combined stockbroking experience of the three affected advisers in this office is in excess of 60 years. Our ages range from 43 to 53. Technically we are classed as being qualified at Level 3, but share a wealth of practical experience which is now being disregarded by the FSA under the RDR proposals. Historically ‘grandfathering’ into a new regime has been used by the FSA in the context of professional qualifications and to abandon this approach marks a significant shift. I fully support the drive to increase professionalism within the industry, but believe there are more practical ways to achieve this.

5. Exam qualifications are used in every profession to demonstrate a core ability to enable candidates to move onwards and upwards within their professional fields. New entrants to the industry, and those who have entered the industry in recent years, have the time and capacity to undertake lengthy study to achieve higher qualifications. This can be accommodated within firms for employees in junior roles and with relatively little responsibility. However, this is not a practical consideration for senior and very experienced advisers, who have substantial responsibilities already and little if any ‘spare’ time for lengthy study. The recommended study time for the Level 4 exam is 400 hours. This will involve 1200 hours in this one office, which will be significantly detrimental to running the business effectively and safely, advising clients, and mentoring junior colleagues.

6. The RDR Level 4 exam requirement for existing advisers is being used only to validate current roles, which are already being validated by other means. As far as I am aware no other profession expects its most senior practitioners to re-qualify when far advanced into their professional working lives. This is therefore without precedent, and as up to 30% of advisers are predicted to leave the industry after 2012, will be a huge and unnecessary social experiment. It is an inevitable result of losing a significant number of advisers that it will be harder for customers to obtain advice. This substantial disadvantage will far outweigh any marginal impact on the public’s perception of increased professionalism within the industry.

7. I believe that forcing experienced advisers to spend considerable time studying for an exam which will only qualify them to do exactly the same job, will detract considerably over the next two years from the important work of providing advice and guidance to our clients at a time when the financial world has never been more uncertain or more complex. For the FSA to convey the message that many experienced advisers are under-qualified is to undermine the public’s perception of the financial services industry at a time when public confidence has already been undermined substantially by the banks.

8. We are already subject to the ongoing Competency requirements of the FSA’s own Training & Competency regime as well as general oversight by my firm’s training department under the SYSC rules of the FSA's Handbook. My colleagues and I have been deemed by the FSA to be fully and appropriately qualified since the Authority took its full powers 10 years ago. Brokers are already required to complete a minimum of 35 hours of relevant Continuing Professional Development (CPD) each year. This is a rolling programme of focused training and development, including online testing by relevant topics. The CPD programme is provided and audited by our professional body, the Chartered Institute for Securities and Investment (CISI). In addition we spend many unlogged hours each month on professional reading and updating in order to maintain our knowledge and currency with the rapidly evolving financial world.

9. The FSA’s overriding objective of consumer protection is already adequately covered by existing rules, and the drive to increase professionalism should be seen as a longer term goal which should accommodate some greater level of recognition for those practitioners with substantial experience. The Financial Ombudsman Service already exists as a statutory organisation with responsibility for settling consumer complaints. It has all the information the FSA might require to identify those firms and individuals who are consistently falling below the standards it might expect, and can therefore focus its efforts on particular firms and advisers where standards might need to be raised.

10. A practical alternative to a single exam requirement for experienced advisers would be ‘grandfathering’ to the new regime plus a structured programme of CPD. If the FSA feels that certain areas of advice are problematic, then focused CPD, provided either by firms or a professional training organisation, such as CISI, would help ensure ongoing competence rather than a one-time exam, the content of which might rapidly be overtaken by evolving industry and market developments.

11. Stockbroking and portfolio management accounted for just 1.5% of all new complaints considered by the Financial Ombudsman Service (FOS) in the year to 31 March 2010. My office has not had one single complaint adjudicated against us by the FOS since the service was created 10 years ago. This is not a high risk or problematic area for the FSA.

12. The ‘cliff edge’ deadline of 31 December 2012 for the entire industry has engendered considerable alarm and distress within many parts of the industry. At an individual level, the prospect of very experienced advisers being forced out of the industry en masse has considerably reduced morale. If ‘grandfathering’ as a concept is to be abandoned regardless of representations from the industry, then at the very least a materially longer transition period would help ensure that this issue can be properly managed so that retail customers are not disadvantaged by the RDR initiative.

Conclusion

13. The drive to achieve higher professional standards is a noble goal, rather like aspiring to have a better life. However the refusal by the FSA to recognise experience, valued by every other profession, and the refusal to allow ‘grandfathering’ to the new regime, will have at best a modest effect on the perception of professionalism within the financial services industry. However, t his will be far outweighed by the negative effect of forcing very experienced advisers from the industry on a single end-date in less than two years’ time, to be replaced over a number of years by minimum qualified but vastly less experienced junior advisers. The experience ‘gap’ to help navigate clients through these challenging times cannot be viewed as being in the best interests of customers.

14. Imposing new exams on many of the most experienced in the industry will come at a significant cost in terms of time, which will undoubtedly divert myself and colleagues from our key task of being competent retail investment advisers and managers.

15. Reconsidering ‘grandfathering’ would provide recognition of the value of experience within the industry, and could be supplemented by structured CPD, and raising professional standards for new and recent entrants to the industry. This would be complementary with, not contrary to, the drive to raise standards within the industry.

16. The FSA appears motivated that imposing a new qualification standard on not just new entrants but on experienced advisers will provide comfort to the investing public. Confidence is actually borne out of the quality and consistency of advice that an adviser provides, and this comes with experience. Many advisers are dismayed that after continuously performing a professional role to the satisfaction of the firm, the FSA and its predecessor regulators for many years, we are soon to be deemed to be ‘unqualified’, and would ask that urgent reconsideration be given to the issue of ‘grandfathering’ of experience.

January 2011