Retail Distribution Review

Written evidence submitted by Mr Philip J Done, PDA Financial Planning

Re: Treasury Committee – Retail Distribution Review

1. In connection with the above I would like to make the following points to the Treasury committee.

2. I am the Senior Partner of PDA Financial Planning, which is a small financial advice firm which I started almost 28 years ago.

3. It is my belief that the Retail Distribution Review (RDR), being implemented by the FSA, will have significant implications for the future of financial advice in the UK.

4. It is my personal opinion that some aspects of the RDR are for the good, for example the raising of professional standards, competence and knowledge. Unfortunately there is one aspect of the RDR which I feel will have significant negative consequences for our profession and for the provision of financial advice to the public in the future.

5. The proposal to effectively abolish commissions as an option for adviser remuneration will separate adviser’s clients into two separate categories, i.e. wealthy or high net worth clients, who are used to paying up front and regular fees in order to obtain advice and will continue to do so without any problems. Secondly, however, there will be the middle market in terms of financial advice, which many of us have dealt with for many years, along with the high net worth individuals. These middle market clients will neither be willing or able to afford payments up front and regular fees on a regular basis, and therefore will largely go without the provision of professional, sound advice. Most of my clients, who correspond to what might be called a middle market client, are quite happy to pay charges on the understanding that some of these charges are reimbursed to us in terms of fees or commissions which have been factored in some way from the charges levied in the long run on their plans. This is particularly useful clearly for modest regular premiums i.e. wealth accumulation, which seems to me may just disappear altogether if these proposals are put in place. It is not commercially sensible whatsoever to take small premiums of (say) £100 per month, or so, from a client and charge the client 3 to 4% initial fee directly on that figure, on an accrual basis in the hope that they pay for many years ahead.

6. Clearly my point therefore is that the RDR works, as it does already, for clients who have in excess of £250,000 to invest and commercially and sensibly the fee proposals work quite soundly in this market place. However the provision of high quality financial advice to people in the middle or lower market with funds of approximately £40,000 or £50,000, or with small pension funds maturing of a similar value, is going to be impossible to provide and to expect the same business model for such clients is ridiculous. This is likely to totally bar people with modest sums from making sensible investment decisions supported by sound experienced advice and they are likely to become poorer in the long term because of it. At the more modest end of the market, clearly often the need for competent financial advice is even more important from a financial prospective than it is for people with significant funds. It therefore appears to be ridiculous and immoral that this group of people is likely to be excluded from the very important financial advice that they require due to the commission abolition proposal of the RDR.

7. It is a mystery how the exclusion of paying fees by way of commission is enhancing the overall consumer choice and experience of gaining sound financial advice. Most of my clients do not care what it is called, basically it originates from the charges within the plans and they understand this and see no further reason for any further changes.

8. I also believe that the abolition of commission as a method of receiving payment will reduce the number of qualified financial advisers available. Competent advice is already scarce and it will become even rarer. It is expected that it is likely that approximately a third of financial advisers will retire, when the RDR is introduced in 2013, just at the time when their skills, to deal with more modest clients, would be extremely sought after and required in order to provide the middle market with professional advice and to plug the pensions/savings/retirement gap, which already exists and is probably getting bigger.

9. It is my belief that this will also severely restrict client choice in the end as I feel that many product providers will start to pull out of the UK due to the additional costs and complexities of trying to comply with RDR and thus provide clients with a much reduced choice for the future. This can not be a good thing, and you can expect it to cost jobs to a significant degree.

January 2011