New RMAR reporting requirements have left advisers disgruntled and questioning the validity of the task. Carmen Reichman discovers what's wrong with the new data collection system...
Retail Mediation Activities Returns (RMAR) are nothing new – the process has been in place for eight years – but recent changes have left advisers baffled.
RMAR helps the regulator monitor and challenge the way firms are implementing rules while keeping an eye on their financial soundness. However, the requirements were overhauled late last year to take into account the Retail Distribution Review's (RDR) new adviser charging models.
Advisers are not pleased with the results – they have called the outcome "burdensome", "nonsensical" and even open to abuse.
Burdensome and nonsensical: Advisers hit out against RMAR
They are particularly unhappy with the two new sections – Section K: Adviser charges and Section L: Consultancy charges – which, together, add 100 new fields to the already voluminous 12-section RMAR reports.
In April, the regulator introduced further new terminology for the sections, which the Association of Professional Financial Advisers (APFA) called "confusing".
The problem with RMAR is that "there is a lot of data and there is some confusing terminology that the regulator has been using", said APFA senior technical adviser Linda Smith.
Firms have misinterpreted some requirements and found it difficult to gather some of the information requested, she added.
For instance, one section would ask for ‘aggregates' of charges but would only accept figures to two decimal points, which made people think it was asking for a monetary value when it wanted a number, Smith explained.
Some firms also struggled to keep up with a change in accounting practices.
Back in the days of commission, advisers accounted on a cash-received basis but now the regulator asks for returns based on accruals accounting – meaning firms have to account for income as soon as an agreement is made.
And for those that challenged the Financial Conduct Authority's (FCA's) requests, the response was inconsistent. Facts & Figures managing director Simon Webster was told to file his adviser charges on an accruals basis and his other income on a cash basis, although that would have made his accounts incoherent.
"The whole thing is as clear as mud. (The FCA's) requirements are opaque, they're inconsistent and the detail and the information and the manner that they want them in is not helpful or logical."
Ample Financial Services managing director Colin Parkin was able to file his return without major problems but said he was surprised by the amount of work the new system demanded, particularly when switching over the first time.
"It was a massive piece of work and the amount of man hours that it took to provide all of that information just was unbelievable," he said.
Kingston PTM partner Sam Caunt questioned the validity of the system altogether.
"I haven't got a problem with most of the RMAR, but there are some things that are just daft."
He explained it is difficult to allocate a fee to a particular type of advice when giving multiple strands of advice at once. He suggested this opened the system up to abuse. He also said it was unclear how advice that did not lead to a product sale should be declared.
"What we are boiling down to there is the difference between giving advice and selling a product. It's in the very simple case where you charge a fee but your recommendation is to do nothing. It's daft. They haven't got an answer. They've just got to try and come up with some suitable guidance. When they do that we can then all provide them with some suitably accurate data."
The FCA's data strategy, published this month, said it would look into the way it collects and handles data, and how it communicates this with firms.
It announced that it would look into the retail investment space first, meaning advisers could be the first to benefit from any improvements but also face being used as a test case to see whether its new information-gathering strategy is working.
What should the FCA do?
Facts & Figures managing director Simon Webster: "All information should be submitted in a standard format. That would give a model set of ratios that you would expect from businesses operating in certain ways based on their turnover and size. You could actually make some assumptions on what the turnover would be, what the balance sheet ought to look like and then you would pay attention to those where it looks strange, where the turnover was vastly up or vastly down from the previous year or where their expenses were out of alignment with their claimed turnover."
Kingston PTM partner Sam Caunt: "I would introduce something like an advice category. The FCA needs to recognise advice. I know they'd probably say we need this product-based information because we have a statutory obligation to report how much the intermediary market introduces but it is bonkers. We can't do it by product, we give advice."
ARK Financial Planning co-founder Phil Stevenson: "I'm a believer in that the basis of the questions they should be asking should revolve around two things: the submissions that you get from your company accounts, and your professional indemnity insurance (PII) renewal. PII is a far better way of the assessing the risks a business is taking than the FCA's way. RMAR doesn't actually assess the risk."
Part of investment committee restructure
Follows Asset Management Market Study
To open in second half of 2019
Regular reminders and updates
9 December 2019 deadline