Retail Distribution Review

Written evidence submitted by Jeremy Brett, Brett Investment

The Retail Distribution Review (RDR)

As managing director of a small financial planning firm here in the Scottish Borders and with almost 20 years of relevant experience I wish to give you my views on this subject.

The first thing I would like to say is that I am fully supportive of the aims of the RDR which is to drive transparency and efficiency into the delivery of financial services within the UK.

For too long now consumers have been offered a ‘raw deal’ by an industry which smacks of protectionism and self interest.

Indeed there is currently a great deal of lobbying being carried out by those who are desperate to maintain the status quo.  More progressive firms, such as my own, are committed to seeing the RDR implemented in full as we believe it will improve greatly the end result for the UK consumer. 

So why are firms dragging their heels?

Mainstream advice has to date been dominated by commission based selling of a financial product. In other words the product providers (insurance companies etc) pay financial advisers a commission to recommend (sell) their products to the UK public.

The RDR recommends that commission be banned and instead be replaced by ‘Adviser Charging’.

Many high street advisers and less progressive firms feel threatened by this proposed move as from 2013 it will highlight how much they are being paid for the simple recommendation of a financial product.

Indeed industry blogs have been inundated by entries stating that consumers will have less choice and will in any event not pay a fee as they instead prefer to pay for financial advice by commission as they perceive that the cost is then borne by the product provider and not them. The truth is that the consumer always pays the cost of commission from increased product charges.

On the contrary and in my experience (since we started offering fee based advice in 2005) consumers much prefer paying a fee so long as the amount is clear and reasonable and that value is added by the financial adviser/planner.

You will be told that the RDR is about forcing the client to pay fees by writing out a cheque. The truth is that clients will be able to pay for future services by cheque and/or by adviser charging.

Just like commission, adviser charging can be a payment deducted directly from a financial product (if the client buys a financial product) but the key difference is that the amount is agreed upfront by the client with their adviser (before the provision of services) and without interference from the product provider.

At a stroke this avoids the potential for adviser abuse and offers complete transparency. I cannot stress how important this is as even today we are visited by new clients who are ‘staggered’ by how much they have unwittingly paid in the past by way of commissions. The point I am making is that for whatever reason they did not know! The banning of commission and the introduction of adviser charging would solve this.

Qualifications

Current entry levels for IFA qualifications are frankly laughable. The RDR attempts to raise the minimum level to QCA level 4 – a much higher standard but still in my view too low.

That aside the point I would make here is that there is a body of long established IFAs who wish to be excused this requirement and instead be ‘grandfathered’ through.

Indeed you will be told that experience counts for more than qualifications. Without wishing to dispute the importance of experience the simple fact is that without relevant qualifications, in a highly technically complex and fast moving world, it alone counts for very little.

Like them I have known about the impending raising of this level for as many years as I care to remember but unlike me (and many, many others) they have chosen to ignore the consequences in the hope that the RDR might never see the light of day.

Consumer Access

You will also be told that the RDR will result in it becoming more difficult for the consumer to access independent financial advice. You will be told that the independent financial adviser will only provide advice to high net worth individuals. But the truth is that few independent financial advisers operate in the high net worth market place.

If I can use my own firm as an example; here we live in a rural area and as a result offer our services to a wide variety of clients from all walks of life. The point I wish to make is that it is possible for us to provide a valued and worthwhile service for all at a reasonable cost.

In conclusion this is a wonderful opportunity to raise the ‘professionalism’ of our industry and ensure that consumers benefit from better, more transparent and sustainable financial planning services.

I would urge you to support this Review.

December 2010