Retail Distribution Review

Written evidence submitted by Mark Gosling, Castle Investments Consultants

I feel it is important for anybody outside our Industry to try and gain a fuller understanding of how Independent Financial Advisers (IFA) operate and serve the general public. We are an IFA business that started in 1986 and have continued to survive because, like many IFAs, we have always put our clients' interests ahead of our own. From facts known, this is clearly not the case with some of the larger Institutions such as banks. We know that these Institutions have high target figures for business imposed upon their staff. We also know that this has led to a sales culture rather than advice. Mis-selling issues have ensued. IFAs come to the fore as a result of this as we genuinely offer advice and do not just try and sell a financial product.

Until 1988, there was a maximum commission agreement between all the Financial Service providers. This meant that wherever a client obtained advice, any commission generated was the same across the board. The Office of Fair Trading decided that this was a "restraint of trade" and this maximum commission agreement was abolished. The result was that the larger banks and businesses negotiated far higher commissions than had previously been paid. This was where matters first started to go awry and banks in particular saw the increased profit margins and took more interest in selling financial products rather than their traditional banking role! This point is ably demonstrated by complaints against IFAs (around 1%), compared with banks etc. (in excess of 60%). Hard sales tactics will always lead to a proportion of inappropriate advice.

We have a number of bank staff as clients including retired and current bank managers. We are wholly aware of the sales practices employed by these Institutions which should be stamped out.

We, as a Company, frequently rebate commissions into contracts for the benefit of clients. In many instances, investments placed through us mean that the actual amount that is invested on behalf of the client is more than the amount that the client originally wrote their cheque payment for. Providers are also often prepared to offer to enhance the investment, a feature which is well received by clients as they can see an immediate increase in their investment. RDR proposals are due to ban any increased allocation rates (initial enhancements) and, with no commission being allowed to be generated, of course no rebate can be made. This practice cannot, in our opinion, be treating the customers fairly as it will put them in a worse position than they have available to them at present.

We have, as an Industry, since January 1995, had full hard commission disclosure. Clients are provided with an upfront disclosure of commission and this is again repeated through the cancellation notice sent directly by the Provider to the client. All our clients have known what the cost of our advice has been since 1995.

We, as an IFA firm, have always offered the client a choice to pay a fee rather than commission. In our experience, in over 95% of cases the client has opted for the commission route. This has specifically included a good number of high net worth clients who have always stated that they are aware, from the illustrations provided, of the cost of advice. They are perfectly happy with this arrangement. Please note that if fees only are charged then there can be an additional cost of VAT, currently at 20%.

I am aware of a number of surveys where clients have stated they would not be prepared to pay a fee. This coincides with our findings, having dealt with our clients as mentioned above.

The RDR proposals will totally take away choice for the consumer on how the cost of our advice is going to be met. This cannot be fair and will clearly go against the idea of Treating Customers Fairly (TCF) which is an FSA theme that has now been running for some time. It will restrict clients' freedom of choice and is trying to drive the system down a route that clients generally do not want and are unlikely to accept. This clearly goes against the FSA's TCF legislation.

We know there is a savings culture gap in this country and it is only companies like ourselves that can help to advise clients to better save for the future for themselves and their dependants.

I know of no other business that has been attacked in such a way under false pretences. Everyone becomes a loser - the clients and the adviser community. It is generally accepted that the best independent advice has always been available from IFAs. The banks, building societies and other large corporations are only in business for as much profit as they can obtain.

We frequently give free advice to clients as we believe that all communities need a certain amount of support. Often, the amount of savings available means that a no risk savings account is recommended. We often find that these clients come back to us in later years when their financial situation has improved and require further financial advice.

New Qualification Rules

Whilst much publicity has been concerning the requirement for further examinations to be taken, I do feel this is not fair on Advisers (and possibly against our Human Rights) who have been trading for many years and have always been authorised and had to undertake Continuous Professional Development. How can a Regulator suddenly impose new requirements which potentially drive Advisers out of business? This has never happened in any other Industry i.e. a Barrister who qualified many years ago only has to continue with CPD work despite the fact that current exam standards may have been raised/improved.

Removal of 15 Year Longstop Rule

There is a major concern within the IFA community that the 15 Year Longstop Rule that has been enshrined in English Law has been taken away which has meant that IFAs can be pursued for claims to the grave. This has resulted in at least one known suicide and it is clearly wrong. I believe that it is against our Human Rights to not have the protection that all other professions have, such as accountants and solicitors.

I believe that the Speaker of the House, John Bercow, recently expressed incredulity that we have no end to liability. This has got to be changed.

Should you require any further information from me relating to the above or any other issues I would be pleased to provide this either in person or in writing.

January 2011