Retail Distribution Review

Written evidence submitted by Keith Lewis

1.                  RDR

This whole topic arose from research conducted by the FSA, in the late 90’s, and was not independent research, but was part of the FSA. As I understand it they only conducted a survey with some 200 people, hardly a massive undertaking, and on this basis so called commission has been disregarded and financial advisers have had to change the module of income, from initial commission to lower commission (front end) and fund based.

Doing some research I have come across an article from Money Made Clear, a product of the FSA, and quote below this as follows.

"do not assume that paying an initial charge means that any investment plan is not good value for money if you plan to hold the investment for a long period of time. You may find that investments that have an initial charge have lower ongoing charges and this means that they are better value for money over the longer term".

This article comes from their own website and you can download a booklet on Investment Bonds, headed "Savings and Investments", which talks about charges, allocation rates, etc.

Under the heading "things to think about", I feel this flies in the face of what the FSA are trying to contribute, in terms of attitude towards commission v fees. IFA’s have always argued that initial charges in the longer term are cheaper for the client, and if you plan to hold investments for a longer period of time, you may find that investments that have an initial charge will have lower ongoing charges, and this means better value for money over the longer term".

(Taken from Money Made Clear an FSA publication)

You may recall in my previous email, I referred to the affects of cots over Stakeholder,  for example Stakeholder at 1% p.a, over 10/12 years is far more expensive than any initial charge contract.

Also, I did other research as part of my examination coursework from the IFS School of Finance, about a survey conducted by Professor Christine Ennew of Nottingham University Business School, and this particular work called the Financial Services Trust Index 2009 Interviewed 1,400 people, in terms of the financial services sector, and the ratings for Advisers and Brokers was 82% and for Banks and Building Societies was 74%.

I trust you are able to use this information, since it is clear that whilst the old structure of commission may be derided by the financial press and the FSA, nevertheless it has a history of working and providing sound advice. The adage, being ‘if it is not broken, does it need fixing?’ 

2.                  Impact on Financial Services Sectors

In the current form the implications of RDR could mean a loss of 30% of small to medium IFA’s and important issues, such as Pensions and Life Assurance always have to be sold, and unless people have access to advice and services, and only have a deteriorating effect on the level of pension provision and life cover, and is a time bomb for any Government, in terms of the public relying more and more on benefits. Also, the closures of many small businesses could result in the loss of some 10’s of thousands of jobs, as well having an impact on larger organisations, such as major life offices having to close call centres.

3.                  Qualifications

On the question of qualifications, it is my own belief that IFA’s should be compelled, rather than sit costly and unwanted exams, which in many ways do not cover the day to day work of an IFA, to sit proper constructed CPD work in accreditation centres throughout the UK. This could take some 12/15 days a year, and be part of training and updating qualifications for IFA’s.

I trust you find this information helpful and should you require any further clarification then please do not hesitate to contact me.

January 2011