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FCA: large advice firms behind the curve on RDR

by Michelle Abrego on Jul 18, 2013 at 10:26

FCA: large advice firms behind the curve on RDR

Large advice firms, like nationals and networks, have been slow to adapt to the retail distribution review (RDR), according to the chief executive of the Financial Conduct Authority (FCA) Martin Wheatley.

Speaking at the final annual meeting of the Financial Services Authority, Wheatley said the regulator had been encouraged by the progress small firms had made with the RDR, but that larger ‘distributors’ had reacted slowly.

‘To be completely honest we expected the industry to... react but what we have been more surprised by is by the larger institutions to be slow to do that,’ he said.

'What we've had with the larger retail distributors is a slowness to revert to models that are RDR compliant. That is something [that] is still evolving now.'

Wheatley (pictured) said the FCA did not see the RDR as an end in itself and would continue to look at regulation around platforms and legacy business.

'Things like platforms and legacy business we will continue to think about,’ he said. 'Frankly we always said that the RDR was not an end in itself. They're a set of rules which we will need to continue to evolve.’

He said that a number of the RDR objectives were being delivered but it was too early to tell whether it had been a success.

37 comments so far. Why not have your say?

David Curley Dip extrodinaire

Jul 18, 2013 at 10:44

Does this mean that the larger firms are still non compliant, trying to take commissions ?

I think so, but its not just the advisory practices, Life offices are still taking commission on Annuity transfer business that they do not even offer advice on, how does that work ?

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Rob Stevenson

Jul 18, 2013 at 10:48

You can't turn an oil tanker round with a speedboat strategy ;-)

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alan higham

Jul 18, 2013 at 10:49

Non advised annuity sales were excluded from the RDR.

I do trust the FCA no longer feels that small IFA = bad and big IFA = good.

Good IFAs come in all sizes and they have to compete with bad IFAs and non-advised sales outlets on unfair terms. FCA needs to address those bad IFAs and non-advised outlets who do not make clear the risks customers take by going non-advised.

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Julian Stevens

Jul 18, 2013 at 10:53

The problem, Mr Wheatley, is that the FSA Mk.I and now Mk.II has imposed and continues to impose on the industry too many changes in too short a time with constant revisions, add-ons and embellishments along the way, much of it of questionable value anyway. Lack of clarity as to your requirements also seems to be quite an issue, as covered in another CityWire feature.

But then the FSA has never been much inclined to listen to what anybody else has to say about anything, far less to negotiate and modify where appropriate. You got the go-ahead for your RDR all those years ago and then went into complete 'We've got the mandate so now we can do whatever we want and nobody can stop us' overdrive mode.

How can you be surprised (though maybe privately you're not) that it's all rather a mess? Messes of one sort or another seem to be one of the FSA's particular specialisations.

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Chris Moseley

Jul 18, 2013 at 10:58

Behind the curve on most things

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RegulatorSaurusRex

Jul 18, 2013 at 11:03

Does anybody wonder why I am extinct?

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Hugh Malcolm Morton

Jul 18, 2013 at 11:04

It would be more interesting to knwo what exactly the larger firms are NOT doing and what the smaller firms ARE doing? The statement is of little interest as there is no detail and without that none of us knows what has gone right and what has not!

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Julian Stevens

Jul 18, 2013 at 11:11

To RegulatorSaurusRex. If we knew who you are we might be. Otherwise, no.

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l'ifa passeport en provenance de France

Jul 18, 2013 at 11:15

Mr Wheatley is allways on the ball

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Agnostic IFA

Jul 18, 2013 at 11:15

Hugh Morton is absolutely right - the comments are helpful but more guidance and detail please.

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Jonathan Kirby

Jul 18, 2013 at 11:16

But Networks like ours are comprised of small IFA firms.

We were well ahead of the curve and had already implemented much of what RDR was about long before it was even talked about.

We have been TCF since formation in the 1960's.

What is apparent though is that the FCA is trying to make the networks standardise all procedures for all the small firms with a one size fits all approach that destroys the very ethos of what we are about - personalised customer service.

It looks as if the time has therefore come to either throw in the towel or get back to direct authorisation. I suspect we won't be the only ones

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Solomon

Jul 18, 2013 at 11:16

Well said, Hugh. Six months or so into RDR, there must be some stories of success and failure to reflect upon. Factual information is what I would like to see printed rather than just inferences and opinions with headlines building them up.

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Bob Donaldson

Jul 18, 2013 at 11:19

It is very easy to speak when you have your salary coming in the door at the end of each month but slighty harder when you are trying to run a business, see clients and completely change the way you are paid and in many cases do things.

Advisory firms are having more and more work dumped on them by both the regulator and the companies with whom we deal. In addition to which many of them are totally incompetent casuing ever more work.

I do have some sympathy with the networks although I have no doubt they will make the changes required. If not the regulator should jump all over them in twelve months time.

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RegulatorSaurusRex

Jul 18, 2013 at 11:28

@ Jonathan Kirby

The lack of control and consistency is the problem, you are not about personalised customer service, you are about being exempt from authorisation only if the network accepts the responsibility for EVERYTHING.

The regulators recognise that networks and nationals are high risk, the next find is a blink of an eye away.

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Knowledgable insider

Jul 18, 2013 at 11:38

Those of you who question what good continuous changes actioned by FSA/FCA are should just consider the following:

1: The FCS is a beaurocracy and as such its employees are paid to be kept busy - the more employees it has the greater the xecutive salaries/bonuses

2: The more rules it instigates the busier it is

3: Once the recent rules are all adhered to the FCA staff have nothing much to do except create more rules

4: If mistakes are made in the design of these rules as is often the case - heads will not role as errors cannot be admitted to as all will potentially be to blame

As yourself this - If you owned a businees where the directors were constantly changing the direction of the business on the basis that the last change didnt work properly so well try this...would you continue to employ them?

The whole thing is absurd and as most of us know it would have been simplicity itself to route out advisers that were ripping off clients. But of course a simple solution does not suit the FCA as it would involve significantly reducing their numbers and executive pay.

I cant help thinking that the Governement are in collusion with this lot as surely they cant be that stupid as to not realise what is going on or maybe the big fines made by the FSA/FCA which now go to the treasury is considered payment to leave well alone.

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l'ifa passeport en provenance de France

Jul 18, 2013 at 11:53

mmm .... could he mean our friends at SJP?

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Jonathan Kirby

Jul 18, 2013 at 12:21

@ RSRex

But surely the most important outcome is that clients are well looked after?

This is turning into a battle between regulator and regulated and the poor old client is just collateral damage.

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Julian Stevens

Jul 18, 2013 at 12:35

Turning into? The regulator declared and has actively waged war on the regulated for the past 20 years.

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RegulatorSaurusRex

Jul 18, 2013 at 12:51

@ Jonathan Kirby

Regulation is about ensuring systems and controls are in place for the entire 'sponsoring firm', in the case of networks and nationals there is ample evidence that there is insufficient control, how else do unsuitable sales of Keydata or Arch Cru get past the compliance department? Later on the network then tries to pin the blame on the employee who introduced the business.

That is no way to run a business and I can't understand why the regulators have taken so long to see this. Mind you, that is what retrospective regulation is all about.

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Jonathan Kirby

Jul 18, 2013 at 13:07

@RSRex

That maybe how it is, but is it as it should be?

We, incidentally, joined a very small network who promised they wouldn't grow too big and would allow us to manage our business, within the rules, just how we wanted to,

Even today the blurb on the website says 'We provide maximum assistance with minimum interference'.

That couldn't be further from the truth and we are paying for the failures of others through an ever increasing amount of compliance and costs.

That is why, as I said above, we need to make a change so that we can continue to put our clients needs first.

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Usually found sitting on the fence

Jul 18, 2013 at 13:32

@ Knowledgable Insider - partly what you say is true. Any organisation needs to justify their existence, with business it is profit and/or growth, with regulators it is meddling. However, to think that Regulator style meddling is the reserve of incompetent Regulators, is probably missing the merry-go-round of incompetent top bods, all introducing their own style of meddling. It happens in business too.

@ Julian Stevens - I think you are quite right, it isn't the meddling or tinkering that is the problem, as any organisation needs to make changes and adapt with the times. It is the volume, the speed and probably the ill thought out and lack of considered consequences that made the FSA stand out from the crowd. The FCA, still needs time to prove worthy, will most likely follow suit, if just to prove what Knowledgable Insider says, it's about their salary, pension and perks than about the sanctity of the client.

@ RegulatorSaurusRex - Lack of control and consistency is not the problem, individuals and their greed is the problem. You can have all the controls in the world, but someone determined to exercise their Thatcher given right to take take take and Blair endorsed to hell with the consequences, will find a way to cheat the system. The control and consistency that you feel is lacking, that will actually hinder innovation and prevent new ideas, new opportunities and prevent advisers actually being able to advise their clients appropriately.

Regulation is, unfortunately, a very necessary evil in terms of protecting the consumer, but regulation should not just be about protecting the consumer, it should also be about protecting those it regulates. Hence I have to agree with other posts above, What are small IFAs doing right and well? Where do the big IFAs need to improve?

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Julian Stevens

Jul 18, 2013 at 13:32

Some KeyData products were approved by some networks for a limited period so, when KeyData came apart at the seams and went down in flames, the members of those networks were entitled to say "Don't blame me, I followed your recommended panel for structured products and I have on file the documentation to prove it".

As for ArchCru, unless the network specifically banned its members from recommending those funds, they would have been left to make their own judgements. In the context of a multifund portfolio, the network wouldn't have known exactly what funds were being recommended.

Some networks have tried to avoid this happening in the future by creating approved fund panels, but the one put out by our network was such a crock that most members dismissed it out of hand and simply refuse to abide by it (though it has been considerably expanded since the first edition).

Mindful, though, of the dangers of recommending funds from any but the mainstream fund management houses, which might go kaput for reasons that the regulator will doubtless determine we should have forseeen, even though the regulator itself did not, I think we'll see more and more advisers sticking to funds just from the big names and avoiding any others that aren't household names.

That's what I'm doing anyway.

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Andy King

Jul 18, 2013 at 14:24

I wonder if Mr Wheatley has a financial Adviser ? if he has is he basing his opinion on his adviser ? if he doesnt have one then his opinion is based upon anecdotal evidence ? wow what a way to run the FCA

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You must be joking

Jul 18, 2013 at 14:28

The continued viability and compliance of any network is only as good as its WORST member...

The continued viability and compliance of any large firm is only as good as its WORST employee/adviser...

Unfortunately this lowest common denominator rule will always be an issue in any large network/firm...

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RegulatorSaurusRex

Jul 18, 2013 at 14:36

"it should also be about protecting those it regulates"

From what or whom?

The Financial Services Authority had a silly name, SIB was no better, I agree that renaming it to "Conduct" makes sense but you should be aware that the only conduct it is interested in is that of the firms who advise consumers.

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RegulatorSaurusRex

Jul 18, 2013 at 14:40

@ Julian Stevens

If you ignore the sponsoring firm's list of recommended providers, products, services you will face difficulty when attempting to avoid claims the firm brings against you when there is a complaint, there is the argument that the sponsoring firm made a commercial decision to accept the new business. What what happens when you have arranged a contract such as Arch Cru through a platform or pension?

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RegulatorSaurusRex

Jul 18, 2013 at 14:43

@ Jonathan Kirby

When you are one of a group of people or incorporated entities who introduce new business to the principal you are brought down to the lowest common denominator.

The only way to change that is to be directly regulated.

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Jonathan Kirby

Jul 18, 2013 at 14:51

@RSRex

Which is what I said at 11:16!!

Oh, well perhaps the cricket's going well?

Arghhhhhhhh.......

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Julian Stevens

Jul 18, 2013 at 15:06

I adhere to network guidance wherever possible, on the simple grounds that to do otherwise would be risking a possibly indefensible complaint. There are are a few areas of policy with which I strongly disagree, e.g. tax free cash unlocking from pension plans (it's the client's fund, so why shouldn't he be free to use his TFC earlier than his NRD? The perverse thing is, the network probably wouldn't get itself into a lather if the client just wanted to vest fully all his pension funds seven or eight years early but if he wants to realise just his TFC and leave the rest to cook for a few more years, we have to write half a dozen pages of guff to ram down his throat all the reasons why he shouldn't. and, of course, the client takes no notice of any of it because he's already decided what he wants to do. It's just ass-covering.

I never recommended any ArchCru funds, I stick religiously to our network's Structured Products panel and their approved funds panel is expanding (the first edition was obviously cobbled together in haste and really wasn't fit for purpose).

Most of my business is plain vanilla unit trusts/OEIC's/ICVC's, the occasional offshore bond, I haven't done a brand new pension plan in years, a bit of protection and I'm working currently on some recommendations for a couple of investment schemes that qualify for BPR.

So I don't really have any serious areas of conflict with my network, though having to write War & Peace just to document a simple ISA recomendation is a major PITA. But then, as far as I can tell, it's the same for all the networks and nationals.

It might help if the FSA would take into account that complaints against IFA's are now less than 1% of the total and, of those, only 46% are actually upheld by the FOS. A policy of regulating the entire IFA sector according to the risks posed by just a tiny fraction of our population is neither appropriate, proportionate or, surely to God, the best use of the FSA's resources.

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Fimbra

Jul 18, 2013 at 19:23

If only we had introduced a low cost product levy, we could have done away with a complete regulatory and compensation awarding culture.

The great British public would still have plentiful financial advice, and the products and marketing would have been better value for money.

A few of us suggested the concept, but as ever the vested interests held sway.

How could you recommend a youngster to enter this mad industry, unless it was for a `feather bedded` position with the FCA or FOS.

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RegulatorSaurusRex

Jul 18, 2013 at 23:03

@ Fimbra

Such a vivid imagination...

Look up "Burn it Down: Observations on the FSA"

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Ian Lees

Jul 19, 2013 at 07:07

It was interesting to see that the FCA has discovered that large firms like nationals have been slow to adapt to RDR - I wonder how this statement was qualified or on what this report this was based , or is it just rhetoric ? However, it seems to have taken the Fimbra, PIA FSA and now the FSA - to find that nationals and large institutions are in Breach of their own Code of Conduct as well as their " regulators " Code of Conduct . . .making them as unethical as they are untrustworthy . . to be looking after peoples money ?

It is the Rule of Public Policy that a person must not be allowed to benefit from his ( or her ) crime.

Yet no one has been challenged fined or imprisoned . . . . over the decades. Only nominal fines on institutions - even on insolvent banks . . .now paid by the taxpayer who own the banks. The regulators bible - taxpayer take up thy pension and fine thyself. But do not expect your full pension fund or full pension entitlement unless you become an MP.

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PaulClaireaux

Jul 19, 2013 at 08:01

It seems that articles without content deliver content rich comments sections

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Jonathan Kirby

Jul 19, 2013 at 10:34

A cynic might say that now that the largest institutions have thrown in the towel they are simply looking for someone else to pick on, impose massive fines and destroy.

There is an incentive to the FSA/FCA to always find fault as their own pay and budget is determined by how successful they decide they are in rooting out bad practice and none whatsoever for maintaining a reasonable stance that allows the advice market to thrive.

And we simply have to get used to this and take the flack.

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Ian Lees

Jul 19, 2013 at 18:48

One thing the FSA FCA cannot be accused of is not having a succession plan . The PIA get out and replaced by an FSA . . . the FSA get out and replaced by the FCA . . . .then there are the employees on short term contracts create problems and fines for the financial institution . . . then join them . . .in a compliance role . . . . . shareholder . . especially institutional shareholders . . .should be afraid very afraid . . .it is a Conflict of Interest . . not to mention employment Law . . . . interesting no one challenges it ?

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RegulatorSaurusRex

Jul 19, 2013 at 21:33

Confused you are?

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Belmarsh Solitary

Jul 19, 2013 at 23:41

Belmarsh Solitary is very concerned to note that the regulator appears to be well behind the curve since RDR. Salaries and staffing levels at the FCA have remained much the same - in fact higher - and the FCA seems slow to react to the self-evident fact that these will be unsustainable in the post RDR world.

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