The RDR, in its current guise, will likely lead to both a drop in adviser numbers and product purchases, according to recently-formed lobby group Adviser Alliance. So it has put together its own, alternative, RDR...
Provide an incentive for advisers to seek out new clients and be rewarded:
Commission is neither good nor bad. Consumers should have the choice of paying a fee or of working on a commission basis. Removing consumer choice is never a good thing and we believe that adults should be free to enter into whatever remuneration basis they mutually agree on.
Commission historically enabled advisers to prospect for new clients. This is crucial because it is acknowledged that most consumers do not take these matters seriously and it is incumbent on the industry to locate these consumers and inform them of their responsibilities.
Apathy is the enemy and skillsets and knowledge count for nothing if consumers refuse to interact.
Remove any accusations of provider bias:
We have a free-for-all system where product providers are able to offer high commissions, low commissions or no commission whatsoever. Understandably there is a suspicion that high commissions are used to buy business, even though research conducted by Charles River Associates for the ABI in 2005 confirms this as more perception than reality.
Back in the early 1990s there was a commission-cap and this ensured that the major insurers all paid the same commission rates.
Remove any suspicion of product bias
It is frequently noted that investment bonds and lump sum pension investments can pay more than double the commission payable on unit trusts and OEICS.
If all lump sum investments limited the commission to 3% of the investment, as is typically paid on a unit trust, then accusations of product bias would be removed.
As with provider commission limits, these have to be agreed by the Office of Fair Trading. The OFT mission statement is "making markets work well for consumers", so there is reason to believe that these changes would be mandated.
Increase adviser skills
Continuing Professional Development (CPD) is essential for any adviser who wishes to update and increase his/her knowledge.
However it is essential that learning is structured to meet actual business requirements and not the theoretical wishes of a regulator. Theory and practice rarely meld in financial services, as stakeholder pensions serve to confirm.
Remove bad financial advice
As an industry we have experienced different regulators that exhibit great skill at hindsight regulation. Often this extends to stating the obvious, such as with lump sum payment protection insurance plans (PPI).
The industry was fully aware that these nasty products were anti-consumer and disreputable yet it took a decade before they were outlawed.
With an annual budget approaching £400m, it is not unreasonable to expect a regulator to be able to discover possible bad practice and root it out before it becomes a scandal.
The Gabriel returns, the Touchstone database and whistle-blowing information should provide a focus on areas of potential bad advice. This should not be difficult for an organisation with 2,643 employees and almost £400m p.a.
Historically, good advisers have been embroiled in ‘scandals' caused by an unsavoury minority and have suffered financially and reputationally as a result. Good regulation is about balance and common sense as much as rules and strictures.
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