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RDR questionnaire reveals FSA’s business model concerns

by Michelle Abrego on Feb 25, 2013 at 13:25

RDR questionnaire reveals FSA’s business model concerns

The Financial Services Authority’s (FSA) review of advisers’ progress in adapting to the retail distribution review (RDR) will go far beyond checking how IFAs get paid; it will scrutinise every aspect of their business models, compliance consultants have warned.

Last week the regulator sent a questionnaire to 50 firms asking how they described their services, whether independent or restricted, and how they charged clients.

The focus and structure of the questions, however, showed the FSA was interested in more than these two topics, according to Malcolm Kerr, executive director in Ernst & Young’s financial services division.

Many of the questions asked for information about firms’ systems and controls, centralised investment propositions (CIPs), platforms and joint ventures with providers.

‘There’s a whole section on CIPs,’ said Kerr (pictured). ‘The FSA did a review on CIPs [in October 2011] and was quite disappointed about the number of cases where the advice was unclear or unsuitable. So there are lots of questions about that.’

Ian Stott, client services director at outsourced compliance firm The Consulting Consortium, agreed.

‘[The questionnaire] is about RDR implementation and adviser charging but also internal governance, and systems and controls,’ he said. ‘The two are absolutely hand in hand here.’

Delving deeper

Kerr said if the FSA was not satisfied with the responses to its questions on CIPs and joint ventures, it could result in more regulatory action.

‘The responses to this will inform the FSA to look again at these areas if it seems that a huge number of organisations are using [CIPs and joint ventures],’ he said.

‘If it saw a large number of firms doing joint ventures, it would probably want to understand whether they have appropriate permissions and competence.’

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24 comments so far. Why not have your say?

Mike Morley

Feb 25, 2013 at 14:29

Compliance Consultants talk up possible problems for IFAs - shock horror!!

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Jonathan Kirby

Feb 25, 2013 at 14:36

There's obviously still too many of us left so need to put the frighteners on.

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Nicholas Cane

Feb 25, 2013 at 14:57

'You shouldn’t be paid more money if you’re taking adviser charging than if your client is paying direct. At the end of the day, your client is paying for advice irrespective of where [the payment] comes from.’

I agree with the second sentence but in respect of the first surely an advisory firm should be free to make differing charges according to the method of payment just as other businesses do?

We use direct debit and direct payments from clients and that works for us but I have heard stories of other firms chasing providers for payments and waiting a month or more for their funds. If it is administratively more difficult, slow or costly for a firm to collect a fee from a third party is it not fair and business-like to charge a bit more than if the client paid direct?

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Feb 25, 2013 at 15:00

@ Nic C: Yes & Yes.

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Hugh Malcolm Morton

Feb 25, 2013 at 15:02


Surely, if it is more difficult to get the money from the provider, then get the client to pay direct. Not sure why they need to get more for the same job? There are clients out there that are sometimes slow to pay so we have a time limit and then charge interest on late payments.

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Jonathan Kirby

Feb 25, 2013 at 15:12

On the other hand, having the provider pay has the great advantage that you don't need to raise invoices, send reminders, pay the postage, and often wait months to get paid so it is more expensive to invoice clients direct in my experience.

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Bored at work

Feb 25, 2013 at 15:23

Anybody know the ratio of compliance consultants to advisers now? Interesting how one group has expanded whilst the other has shrunk. All ex FSA boys I assume

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Nicholas Cane

Feb 25, 2013 at 15:27

Hugh Malcolm Morton - we do get the clients to pay direct. I was suggesting others might want to go the other route, for some reason or other, and if it was more expensive or time consuming to collect their fees that way it would seem perfectly reasonable to pass that cost on to the client if they have chosen to pay that way.

Jonathan Kirby - how do you do your accounts if you do not raise invoices?

It must be tricky if you have bad payers. Perhaps ask for some money up front?

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Ian Lees

Feb 25, 2013 at 15:31

I think that it is bizarre that given the repeated failures of the FSA ( The Financial Services Authority ) - who like their namesake the Food Standards Authority another FSA who has failed consumers - should wish to instruct anyone on " how to run their business ", or interfere - in the way REAL and TRUSTED ADVISERS are remunerated. Clearly these failures from the banking industry -- who are used to the bizarre bonuses and payments by results ( ususlly failures in finance ) - should wish to educate anyone> That is like asking the insolvent and remaining banks - to " educate school children in finance ", when they have failed so miserably - in running their business. Still I suppose it keeps insolvent and redundant bankers off the streets - where it is unlikely they could sell their bodies - for any worth ?

It is bizarre that NHS Trusts - are run by the incompetent - and as a result of their failures we find they are in fact Death camps . . .with no controls and no one responsible for the failures of NHS Trusts. Perhaps one day some policitican might pick up on these failures - but only if they want an election ? Elections are jsut another example of the tick box society we live in - devoid of responsibility by those at the head - and obviosuly the reat are at the other end. . . " licking " them into shape ?! ?

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Jonathan Kirby

Feb 25, 2013 at 15:42

@ Nicholas Cane

We only raise an invoice if we are charging direct.

Otherwise it simply goes down in the good old fashioned ledger and gets ticked off when the money comes in.

Most people are reasonably prompt at paying but we do have the odd one or two 'busy' people who never seem to get round to writing the cheque.

These are usually the same ones who want everything doing yesterday!

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Bob Donaldson

Feb 25, 2013 at 15:53

The industry has now grown from a situation of about 30,000 advisors to 30,000 advisors plus four hangers on to each advisor. You have people tellilng you how to do your job, people running exams, compliance consultants, software consultants, lead generation companies, claims management companies.

The situation has completely reversed from where it was thirty years ago with the majority of people out doing business with clients, to a 1 to 4 ratio of advisors to support staff and regulators.

No wonder the UK is in such a mess. If industry operated on the same basis it would be bankrupt.

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Ian Lees

Feb 25, 2013 at 16:24

@Bob Donaldson . . I totally agree with you - it reminds me about a Labour Government many years ago - who wanted to shorten the Dole Queues . . so they asked those in the queue - to double up - to half the queue. The same thing applies now on paper - thousands of people have been removed from the unemployment figures - with vasrious descriptions - and in financial services - we used to have administrators and technical consultants - now all labelled some form of planner . . . or as more acurately described " hangers on ", or as we call them in the Border Regions . . ."clingers ". Administrators and financial planners are needed - and most people who are sales people - obtian great assitance ( and technical expertise ) from them. . . but do we really need so many . .. I have made three redundant - to accomodate the FSA and Level Four Qualifications - and our not local MP, Ann Main ( lives in "Berk" hampstead ( you couldn't make this up ) and travels to Herfordshire on occasions - is fully aware - and has ignored it !

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Arthur Schopenhauer

Feb 25, 2013 at 16:58

IS this the same Malcolm Kerr that was a Director of Albany Life?

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Arthur Schopenhauer

Feb 25, 2013 at 17:03

Answered my own question yes and here is how he sees our future comrade welcome to the Ministry of Truth

Malcolm Kerr, executive director in Ernst and Young's financial services division, gives his top predictions on what the world will look like from January 2013 and for the next four years.


- Q1 2013 will be "astoundingly depressing" for advisers as sales drop 30%

- Trends towards passive funds will continue

- Will see a reduction in vanilla onshore and offshore investment bonds

By 2016...

- ISA could be included in auto enrolment

- Nest cap removed, minimum contribution raised to 12% via additional employee payments

- Restricted and independent labels will be removed

- Minimum qualifications of level 6

- Ongoing fees to advisers will require an annual opt in

- Fund management charges set at 10bps unless 60% of the target return is achieved

- All pension schemes to publish all costs per member per year

- Two or three serious product providers will have closed to new business as all value is in the legacy business

- Significant consolidation in the retail fund management space


- Professional services culture and fee structure

- Using technology to reduce the cost of advice and facilitate execution-only services

- Around 200 clients per adviser

- Able to retrain and recruit graduates

- Focussing on less than 5 million households and 55 years plus consumers

- Maybe embedded within investment management businesses, with accountants and solicitors

- Only 20,000 advisers needed

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Ian Lees

Feb 25, 2013 at 19:43

@Arthur. . . that sounds more like a " Communist State ", or a Dick tatorship . . .rather than an opportunity to take and make decisions based on each individual, by each individual . . . what I referred to at, "bored" level of scottish Widows where the incompetent - were running the incontinent ". Of course the voting public, the consumers could vote against these by opting out . . and with pension funds being chased by MP's and politicians . . to use their pension funds . . . to fund the " infrastructure ( as a stating point ) I am extrmely concerend and I want full control of my finances. I do not wish ot be dictated to by some incompetent beurocrat - or some pathetic short sighted MP.

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Arthur Schopenhauer

Feb 25, 2013 at 19:52

@Ian They were not my comments but those of and E&Y director Malcolm Kerr in a recent press article

I too want some sanity to return to what we do as advisers not a check list designed for the kid at the building society advice centre

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Ian Lees

Feb 25, 2013 at 20:32

Unfortunately, we are seeing the results of the LACK OF TRUST , the lack of care and the inherent negligence and total incompetence from Insurance company Directors and Bank directors - targetted against consumers - to reduce quality, to reduce competition and to reduce the opportunity for independence of thought - replaced by reckless haphazard product flogging to the detriment of the insurance companies who pay their salaries - to their wage slaves . We see messers stewart ritchie and the woman an ex from TSB attempting to find a " savings product " that can be force fed - like auto enrolment - from irresponsible Dragons ( or is it the 'drug' ons ) den folk - who claim " I m in " , but have not thought out , or through the mess of pensions or . . what they are " in", . . . or the cost to them as employers or the cost to their employees. Like tesco burgers - the " real meat " is missing - replced by horse trading standards - and the FSA is nowhere to be seen - i.e. stable door is open and horse " bolted ", literally, bolted in the abbotoir - and forced through life's mincer - to 'meat' abysmal standards of care, their standards uncontrolled . . . unchecked . . . not monitored by anyone . . and especially those who could not care less !

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Michael Shea

Feb 26, 2013 at 08:50

@Jonathan Kirby

How do you account for VAT without invoices?

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Jonathan Kirby

Feb 26, 2013 at 09:38

@ Michael Shea

VAT is only required where product is not taken up.

If a sale is made there is no need for VAT so where the money is sent to the provider VAT is by definition not required.

If on the other hand someone wants a recap of their situation and no new products we can invoice with VAT.

It is just yet another stupid consequence of the Retail Distribution Disaster.

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Arthur Schopenhauer

Feb 26, 2013 at 09:49

@ Jonathan Kirby Have you thought about registering all your SIPPs & SSASs for VAT so that a recovery might be made in some situations

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Jonathan Kirby

Feb 26, 2013 at 10:19

@ Arthur S

We do have the odd SIPP registered for VAT but due to a quirk in the rules it doesn't help us.

We do so little VATable work so as a firm are under the VAT threshold.

However, the network turnover is what counts for charging so even though we may have to charge it, we can't reclaim any!

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Arthur Schopenhauer

Feb 26, 2013 at 10:36

@Jonathan Kirby There must be a way of correcting this additional tax burden of non recoverable VAT. It seems to me that RDR gives us two businesses. One giving advice and the other implementing advice given VAT of the SIPP does have significant impact where commercial property is involved as a direct holding. There is a solution here somewhere adn worth the investigation as VAT will no doubt rise in the next few years

QE has this effect as this training file explains


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Why did I do level 4? via mobile

Feb 26, 2013 at 18:20

A phrase in the Clint Eastwood film, Heartbreak Ridge comes to mind. Something about a 'Cluster.......'

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Ian Lees

Feb 27, 2013 at 07:04

Was that General Cluster ? Interesting conversation form FSA yesterday - about the way the FSA is going to deal with " Advisers " who " shoehorn their clients into products and services - without conducting Risk Profiling without conducting Due Diligence without ( so many withouts ) . . . . but this apparently excludes Auto Enrolment - where employers will be the advisers ( following FSA rule Book ) " pensions cannot be sold without adivce ". It appears that the FSA having reduced the numbers of advisers - will be appoinint " carers " to assist employers motivate and /or force 60 Million people to " auto enroll " Where can I pick up this franchise ? How much does it cost .. . me the taxpayer ? Will I now have to give up my endowment policy - becasue the Governemtn has forced my wages down, forced me into a long term savings contract wher ewe do not know how much it will cost now or in the future ( sounds like another development for the SNP and their scottish parliament / or edinburghs 200 yard ( no metres for they are not in Europe ? ) Tram lines in Princess Street ( it was named princess street when it started princess elizabeth ? ) Where has Clint Eastwood . . . or have all the leaders gone ? Lets get rid of these " apprentices in Parliament ", and make better use of kick out plans and kick - out Cameron and his cronies .

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