20th June 2012
Post RDR advice costs. “What’s it all about Alfie”?
I read a comment earlier in the week in relation to this headline “Aifa and Deloitte disagree on independent advice cost. Independent advice is likely to cost more than restricted recommendations, Deloitte warns, while Aifa says charging will be unaffected”.
It said “I would have thought that it makes no difference what sort of advice is provided because it will all cost the same in time and of course the cost of regulation just keeps increasing while the failures increase in size. What’s it all about Alfie?? Strangulation by regulation because supervision has failed?
And I guess the question must be what the unintended impact of regulation has done and it will do to the cost of advice and the relationship impact upon the Consumer?
Deloitte’s say that IFA firm compliance costs will no doubt increase due to the need to ensure that advice meets the now less than “clear English” FSA definition of independent status.
These are of course all part of the costs that are borne by firms in doing business, but let there be no doubt, these will be paid for by the consumer.
Or more accurately, it is expected the consumer will pay, but will they want to?
Do they see value? Well that is the challenge for firms, finding a way to demonstrate value in their proposition.
Do they see the purpose and benefits of independent advice or will consumers care??
Will restricted advice offer lower costs to consumers?
AIFA see that firms charging will not be affected by the model a firm adopts, I am not sure I see this is possible.
It is understood that certain platforms may offer different remuneration packages depending on the status of the adviser they are dealing with. Does this mean a restricted firm will have more or less attractive options than the independent firm?
What of P.I. costs in all this expense?
These are rising and will rise more. Why? Well a contraction in the market does not help and although P.I. is mandatory for firms it is a fact that P.I insurers are hit hard too due to the oft-denied application of retro regulation on IFAs.
Having read the FSA RDR guidance on Independent and Restricted advice one wonders what the point of P.I is any more.
Section 2.15 of the guidance states:
“If a firm cannot or will not advise on a particular type of retail investment product, and that product could potentially meet the investment needs and objectives of its new and existing clients, then its advice will not meet the standard for independent advice.
In other words, the justification for a firm excluding types of retail investment products from its range needs to be centered on the client. As an example, the fact that a firm’s professional indemnity insurance policy specifically excludes certain products would not be a valid reason for never advising on such products”.
P.I is really redundant TODAY as a suitable insurance cover for many adviser firms because the excesses are so high and often matched with many restrictions. It is now a one shot stop gap disaster cover for smaller firms. Link this to the possibility of multiple claims and a firm will be see no alternative but to shut up shop as it simply cannot afford the claims, an attractive option for limited liability firms.
And where do the claims go- the FSCS of course.
Maybe time for a re-think, P.I. could be abolished and the premiums go to create an industry self-insured pool within the FSCS along with a Consumer levy?
The Consumer always pays in the end but at least this thought would demonstrate greater consumer transparency and move it away from the cost of advice and place it firmly into the cost of protection where it really should be.
As the song goes “What's it all about, Alfie? Is it just for the moment we live?
Comments (2)
In my reasonably long and varied career both inside and outside financial services I have, from time to time, come across these large accountancy practices who, over the last 40 years or so have reinvented themselves as experts on everything. Schadenfreude knew no bounds when the then doyen Arthur Anderson fell to earth since reinventing themselves as Accenture.
These organisations are undoubtedly staffed by bright people, but too few with any real hands on experience of the matters on which the pontificate. They are also so out of touch with the real world as to be on a completely different planet. This is no doubt due to the rarefied atmosphere of unimaginable wealth in which they find themselves for much of the time.
To provide an illustration. Deloittes is perhaps at the smaller end of the big four (the others being PWC, E&Y and KPMG). Notwithstanding I believe the gigantic skyscraper that I attended was but one of their London establishments. How you can afford a pile like this based on audit work and bit of consultancy on the side is one of the mysteries of life (at least to me). But the real crunch came in the meeting room. There were in all about sixteen of us around a horseshoe table. Each place had what looked like a mobile phone on it. This turned out to be a mechanism for casting ones vote on the issues that were to be raised. In addition they had in attendance and IT person, purely to look after this function. I imagine she was paid a little more than 5 for the days work. I naively enquired why we couldnt simply raise our hands if in agreement with a point. This received a tart response and rather illustrates the point Im trying to make.
In a very modest way I have in the past carried out some business consultancy on matters on which I was well qualifed to do so. I have always held however that if a firm needed management consultancy, the first thing they needed to do was to sack their own management who obviously werent doing their job!
To plagiarise Henry ll Will no one rid us of these turbulent charlatans?
Norwest 22/06/2012 09:21
The PI risks are lower for these areas and the research time is shorter. So there is a case for the lower cost base in a restricted environment. These areas are hugely undersold, especially in Business and Estate planning, the demand is increasing resulting in potentially more business than any one firm could handle.
The adviser GP is dead. If I can contract out my Investment and Pension work to a trusted Independent and in return receive mortgage and protection work I for one am happy with that. Profit is profit irrespective from where the business is. It is the B all and End all of any commercial activity.
callomon1 22/06/2012 11:05
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