Retail Distribution Review

Written evidence submitted by John Whipple

The main problem for the UK is that of the savings gap.

There is much very wrong with the FSA as has been recognised by the fact it is to be disbanded and reformed. The trouble is that we have seen this process before and it has to asked if the outcomes have been worth the costs involved for the economy, markets, industry and the poor consumer who is hardly ever mentioned or thought about at any stage. 

Regulation of consumer "advise" currently is might I suggest completely unsustainable.

The FSA has encouraged a huge compliance industry with its own vested interests embedded such that even the wording down to lower case or upper case letters in literature and letters are questioned whilst all around Rome burns.

The main problem for the UK is that of the savings gap. That is hardly anyone saves at all.

Since the FSA destroyed the Home service insurance industry in the UK the "ordinary" average income type long term saver has virtually disappeared and the family tradition of saving has been trashed. The consequences are that young people are no longer starting life at age 16 or 18 with small capital sums to help buy transport or help with college expenses all they are faced with is debt.

And it is debt at every turn.

It takes less than 5 minutes for a shopper to obtain a store card yet it takes hours of work and reams of paper and true dedication to the task to save £25 a month into an advised ISA.

Regulation must be turned on its head and the product should be regulated and the obsession with "process" be slashed down to appropriate size. Is it any wonder we see the UK insurance industry all trying to head for the exit or buy into Asia? We used to have the best pension industry in Europe no longer.

As we know the FSA is staffed by possibly good people who have nothing to do it seems other than either trying to bolt stable doors after the horse has bolted or sit around dreaming up new "consultations" this industry has had change after change after change for no benefit to the consumer for many years now. All it has done is add cost, add costs and cost more to achieve the worst outcomes with the public very distrustful of Banks, Insurance Companies and worst pension provision. In fact the only people who seem to have trust is small IFA firms who know their clients by name. The RDR is targeted at these very same firms in an attempt to rip the consumer off even more than they have been over the past 10 years or so by cutting choice even further.

It seems very odd that in health, In Education the clamour is for wider choice and consumer led demand but in Financial services the elite running the cartel of providers want to cut choice and competition and create a closed shop. They of course just want to control the market and the distribution channels in order that they can maximise profit and have no interest in choice innovation or treating the consumer fairly. For proof of this statement just take a look around at the Banks actions since the Money Markets clammed up in 2007/08. Since then we see banks widening lending margins, we see them churning debt (that is turning existing overdrafts to secured loans) charging for the "service" and then hiking the interest rates and selling caps and or swaps along side. This has been going unquestioned but it is having the effect of lowering business investment and causing a drag on economic recovery.

Contrast this action to that of the German Banks who have supported their industry by increasing lending so that investment can take place and then cast your eyes over the results seen in the economic figures.

The RDR is a an attack on currently authorised and competent persons who do on the whole a very good job for their clients as witnessed by the complaints figures declared by the FOS – since the worst crisis since the 1930’s IFA complaints are and have been very, very few 2% or so of the total complaints received this should speak for itself. Our clients are generally serviced talked to written to advised as they progress in life not just flogged the marketing departments flavour of the month and then ignored.

As to payment again there should be choice for the consumer fees, commission or a mix of both (offset), as peoples circumstances change through life as MPs you might be very aware of that from your surgeries. Some transaction may suit fees others might suit commission others a mix of both. There is no shame in taking commission that is how the world works in private sector you sell to a willing buyer at an agreed price. As long as the consumer has the choice to "shop around" and have different options open to them let them decide. Even France is to open up their domestic markets to some competition in the next couple of years!

The RDR is set to restrict full whole of market advise to a very few, very wealthy, people with knowledge and confidence and disenfranchise the rest of society over the past 12 years we have seen social mobility decrease, social exclusion widen and the rich get very rich indeed and the divide between the average income earner and the poor widen dramatically.

Please remember that IFAs have worked in a very intensive and compliant environment for the last 14 or  so years and because the Government of the day keeps changing all the laws and rules and taxation regimes we have to keep up to date sometimes the regulations change more than once a tax year so any exam we take based on last year’s rules are out of date. And could mean that the advice is no longer applicable. So we see CPD as much more relevant and meaningful for our clients and sometimes their accountants as well who rely on us to give them the proper and new rules to work within.

Mr G Osborn and Mr D Cameron have both given speeches about how we must turn the Country around from one of borrow and spend to save, invest and produce to start to earn our way back and out of debt. Yet RDR is designed to create further unemployment, cut existing client adrift and leave the saving and investing landscape smaller narrower and a lot more expensive.

My idea for proper regulation is simple (perhaps to simple and would cost very little perhaps far too little).

It is that of product regulation.

We have two leagues a Retail League for products that are passed by a panel of current practicing IFA (not there managers or their directors how may have vested interests) product providers, and a couple of other perhaps a FOS ombudsman and a lawyer they would serve for no more than 3 years perhaps a rotation system of one year in one two out would ensure some continuity but also stop cosy relationships and always give different perspective and experience.

All providers that wish their contract to be in this league are given a remit for their products to meet they are then scrutinised and if passed enter the league. These products are fully backed by FSCS no questions no enquiry no delay full confidence for the consumer to a certain investment limit say £30,000 (bank accounts are not included as they are not "investment products")

League to would be "City League" and these would be "ceavet emptor" products could move "up" to the retail league once a track record is established and if the provider wishes.

The costs be borne by the providers to enter each league lower cost for the city league and consumers would pay a premium for buying the retail league products.

The panel would be open to whistle blowing from providers employees and would have the power to publish any report it might have to make on any provider found not complying. This system would not stop criminals of course so there will always be financial crime but it would be proactive rather than reactive.

January 2011