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FSA CEO Hector Sants has ruled out 'any dilution of the RDR proposals' in a personal submission to the TSC.
He said any watering down of the proposals would result in "an increase in the cost to consumers through continued mis-selling".
The TSC is mulling whether to hold a full evidence session on the RDR but it appears any attempt to change the original proposals may be in vain.
It collected 203 submission on the RDR from IFAs, providers and trade bodies, with many respondees expressing their concern about areas including the lack of grandfathering and long stop and the number of advisers who will be forced out of the industry.
However, in its own submission, the FSA said: "The RDR is absolutely vital if we are to build consumer trust and confidence in the advice sector.
"We expect the package of changes we are making will result in a sustainable market that is a better place in which to do business in the long-term and advisers will be better equipped to give good quality advice."
The regulator said it had ruled out grandfathering partly as the majority of respondents, including AIFA and other adviser representative bodies, were against the proposals.
Below is Sants' letter in full.
Letter from Hector Sants, chairman of the FSA, to the chairman of the Treasury Committee.
Retail Distribution Review
We welcome the Treasury Committee's continuing interest in the FSA's Retail Distribution Review (RDR). The RDR is an important aspect of our programme to address fundamental flaws in the market for investment products and services in the UK and we will of course submit formal written evidence to your inquiry in January. In the meantime, I hope it will be helpful if I set out why we remain committed to modernising the industry through the RDR to address a market that was not working, and does not work, well for consumers, advisers or the firms which provide these products and services.
Problems in the market
In recent years, mis-selling scandals and a lack of consumer trust have severely damaged the reputation of the retail investment market, with nearly £15bn having been paid in compensation for mis-sold personal pensions and endowment policies. However, this is not just a historic issue.Our supervision has shown that problems continue to exist in the market and there is widespread agreement that fundamental changes are needed in the market to address these problems. Specific examples of unsuitable sales and an illustration of the associated annual cost of consumer detriment based on detailed reviews we have carried out are as follows:
Pension switching (2008), 16% unsuitable sales, £43m of annual consumer detriment
Unit trust vs. equity ISA (2005), 12-20% unsuitable sales, £70m illustration of annual consumer detriment
Investment bond vs. equity ISA (2005), 12-20% unsuitable sales, £92m of annual consumer detriment.
Personal pensions (2005) Analysis indicated a link between commission payments and market share, up to £18m of annual consumer detriment.
These figures, which amount to an annual consumer detriment of £223m, under-estimate the scale of the problem as they are based on just four incidences of mis-selling. Ongoing supervisory and enforcement action means we are unable to cite more recent examples; however, we estimate that the average annual detriment arising from the sale of unsuitable products to be nearer the range of £0.4bn to £0.6bn.
At present, around 70% of consumers do not seek advice from an investment adviser. Trust in advisers is higher for those that use an adviser than those that do not but it is worth noting that 40% of those who have recently used an adviser say that they do not trust financial advice. Our consumer research has found trust to be a more important factor than price for selecting an adviser2 and that confidence can be established in advisers through the demonstration of knowledge and qualifications3. Achieving greater trust in the investment advice sector could lead to greater engagement in investment advice, and so to more consumers seeking advice.
RDR proposals
The high incidence of mis-selling in this sector arises from fundamental flaws in the market. We launched the RDR in June 2006 to work with the market to identify and address these flaws and have developed our proposals in conjunction with industry, consumer groups, trade associations and professional bodies following the FSA's most extensive and far-reaching consultation process to date.
The RDR is designed to provide a clean and sustainable market for the future. It will ensure customers get good quality advice, products and services suited to their needs from advisers displaying higher standards of professionalism and expertise. The regime needs to change and this change will be supported by our intensive supervisory approach including a greater focus on individuals. Our policy proposals aim to do this by:
•
increasing the professional standards of advisers;
•
improving the clarity with which firms describe their services to customers so that they know whether they are getting advice which is truly independent (covering the full range of possible investments) or is restricted in some way (for example advising on a particular range of products, or on products from one or a limited range of product providers);
•
addressing the potential for commission bias to distort consumer outcomes; and
•
ensuring personal investment firms have adequate capital resources for complaint redress.
Our rules on adviser charging, service description and capital have already been made by our Board. We believe all these reforms are necessary in order to equip retail investment advisers to deal with the challenges they now face and to remove you received any professional distortions in the way the market has operated in the past. This will provide better protection for consumers and better outcomes for consumers.
Professionalism
We are, of course, aware of the concern that has been voiced in recent weeks by individual advisers and some of your parliamentary colleagues about the impact the RDR, and in particular our professionalism proposals, may have on this sector. We do not agree that the RDR will threaten the availability of good quality advice.
To achieve our aim of a more professional advice market, under our proposals all advisers will be required to adhere to common professional standards, including reformed qualifications and effective continuing professional development. If consumers are being advised on how to invest their life savings or choosing the right pension to support them when they retire, they expect an adviser to be professional and for that professionalism to be closer to the standards of, for example, a lawyer or accountant. At present this is not the case.
The new measures come into effect at the end of 2012, by which time existing individual advisers will have had four years to prepare, including meeting the qualification requirements. We were clear in November 2008 about our intention to raise professional standards, including modernisation of qualifications and we said that those who are on course to complete, or already hold an appropriate qualification4 could continue to give retail investment advice.
The new requirements will apply to all those giving investment advice to retail customers, regardless of the type of firm they work for (e.g. banks, insurers, independent financial advisers, stockbrokers or wealth managers). They will not apply to those who advise solely on mortgages or general insurance. I should point out here that due to the enhanced consumer protections provided by stakeholder products, the RDR will not apply to those giving advice under the Basic Advice regime.
Our experience is that advisers are now, on the whole, getting on with attaining qualifications, where they need to. According to research5 carried out in March 2010, 49% of all individual investment advisers were already appropriately qualified. A further 40% expected to have completed the qualifications by the end of 2012 and only 4% were steadfast in their view that they will not seek to attain a new qualification. Of the remainder, 1% expected to complete after end-2012 and 6% fell into the ‘not known' category. Connected to this, one of the main awarding bodies, the Chartered Insurance Institute (CII) indicate they have seen a 65% increase in candidates sitting their qualifications in 2010 compared to 2009.
Our current proposals are that advisers holding certain existing appropriate qualifications may need to carry out activity to fill knowledge gaps through structured continuing professional development (a form of grandfathering).
The qualification standards have been developed by the industry itself following extensive consultation by the FSA and the Financial Services Skills Council (FSSC). The response to our June 2007 interim report and the FSSC's own 2009 consultation on the qualification standards (which cover content and level) showed strong support for qualifications to include practical application of knowledge: QCF level 47, which is the vocational equivalent to the first year of an academic degree, is the lowest level that achieves this. The reformed qualifications now include investment risk and ethics as well as practical application of knowledge, as part of the syllabus - we believe these changes are fundamental to equip the modern adviser to give good quality advice.
A minority of individual advisers have expressed concern about the time it may take them to attain the qualification they need. The FSSC's consultation and working groups established that the new syllabus would map to a diploma sized qualification under the QCF. The Office of Qualifications and Exams Regulations (OfQual) guidelines suggest the average learner takes 370 hours to complete a diploma: this includes directed study, homework, assessment and preparation time. This is the expected time that a new entrant would take: we would expect those advisers with considerable experience to find that the time they need to study will be significantly lower than that. The main qualification providers for this sector have indicated to us that it is taking between 6-24 months for most advisers to complete their qualifications.
The majority of respondents to our consultation were opposed to the use of grandfathering, meaning existing practitioners should not be exempt from meeting the new qualification standards8. Those respondents (who included consumer and IFA representatives) told us that they felt that this would not achieve a level playing field for investment advisers and would not provide a consistent message for consumers about professionalism of the sector. Our experience in allowing grandfathering rights for mortgage brokers has been that it has seen a continuation of mis-selling, resulting in nearly 100 brokers being disqualified to date for incompetent and unethical practices. Whilst complaints can indicate potential issues, due to the long-term nature of investments the absence of complaints does not necessarily mean consumers have received suitable advice. This puts advisers in a difficult position because their customers very often do not understand the position they are in until many years later. Therefore, without applying the new qualifications to the whole industry, problems of mis-selling may continue under the new regime, further undermining confidence in the industry and at a cost to consumers.
We understand that many advisers find the prospect of taking further exams daunting and are sympathetic to this. In June 2009 we responded to consultation feedback and feedback from some individual advisers that we spoke to, and agreed to allow for a move away from written examinations to allowing other types of assessment to be used in awarding qualifications. We have, and continue to, work with the qualification providers, IFA firms, and their representatives to make these types of assessments available. Since then, we have seen the launch of three qualifications that do not rely on written examinations to determine an award, spanning qualifications for the various types of adviser that are within the scope of the RDR. Additional qualifications using assessment methods other than written exams continue to be developed. There are also qualifications that do involve written examinations but are very much based on case studies and are highly relevant to the role of an adviser. For example, one qualification involves a candidate making recommendations based on a specimen fact find that is provided to the candidate two weeks prior to the examination itself.
The link between higher professional standards and better consumer outcomes is also borne out by several pieces of research in this area. Recent thematic reviews of industry performance that we have carried out show a clear link between advisers' professional qualifications and the quality of their service. We will expand on the research in this area further in our written submission; however, two examples of this research are as follows:
•
Our data from early 20109 on platforms shows the advice of advisers meeting current qualification standards was deemed to be ‘suitable' in 11% of cases and 89% of advice was either ‘unclear' or ‘unsuitable'. The advice of advisers with a similar qualification to the new standard was suitable in 43% of cases, ‘unclear' in 32% and unsuitable in the remaining 25% of cases. Cases from the few advisers who had attained qualification in excess of the new standards indicated that 71% were classed as ‘suitable' advice and were ‘unclear' in 29% of cases.
•
A review of the quality of financial planning advice by an expert panel from Australia (ASIC 2003 study)10 also showed that plans completed by advisers with a ‘certified' / qualified status (around QCF Level 6) scored better than unqualified advisers.
Adviser charging
Adviser charging is another key element of the RDR. At present, many consumers using the services of a financial adviser believe they are getting free advice. In reality, they do pay, as charges for advice have simply been added to the cost of the product and then the product provider pays the adviser commission. This creates a potential conflict of interest. For example, research referenced in our March 2010 Policy Statement found evidence of product bias in the equity ISA market, where in 20% of mystery shops with commission-based IFAs and in 12% of mystery shops with a tied-adviser an ISA was not recommended when suitable - instead clients were recommended unit trusts or unit linked bonds that could
potentially pay the adviser a higher commission11. Furthermore, our consumer research found that only around half of respondents understood how the value of their product would be affected by commission. This can be damaging to consumers and undermines trust in the investment industry.
Our new RDR rules will prohibit the receipt of commission in relation to advised sales of retail investment products. After that date adviser firms will have to set their own charges for advised sales. These charges should reflect the services being provided to the client, not the particular product provider or the product being recommended. We believe that this will remove the risk that provider influence could lead to product bias (or the perception of it) thereby contributing to improvements in consumer confidence, the fair treatment of customers and the sustainability of the UK retail investment market.
The new rules require advisers to discuss and agree with their customers how they will pay for advice, and there are a number of different charging structures that might be adopted. Payment could be a fixed charge, it could be based on an hourly rate, reflecting the time taken by the adviser to perform the service, it could be based on a % of the amount invested or through some combination of these methods. Some customers with a lump sum to invest may wish to pay for advice upfront. Others may wish to invest a regular amount each month and so be unable or unwilling to pay for advice at the outset. In such cases there are a number of different charging structures that can be adopted, for example, spreading the payment over a period of time. This might be by means of a regular payment to the adviser, or if the product provider agrees, customers would also be able to ask for their adviser's charges to be paid out of their investments. The difference between this and the present system of payment by commission is that it would be for the customer and adviser to agree how much should be paid. The product provider's role is simply to collect and pay the agreed amount.
Capital resources
Holding capital resources against all Professional Indemnity Insurance (PII) exclusions, regardless of whether they relate to regulated business activities or other FSA-instigated events, ensures firms are in a position to redress complaints against which they are not insured. We are simplifying how firms will calculate this requirement and making it consistent for all firms. We are extending the expenditure-based requirement to all firms based on three months of relevant annual expenditure and increasing the minimum capital resources floor to £20,000. We have also set out more specific requirements as to the level of additional capital resources needed where firms have any type of exclusion in their PII policy.
RDR Costs
The detailed cost benefit analysis we have undertaken on all of the RDR changes has estimated the implementation costs, based on industry feedback, to be in the region of £1.4bn to £1.7bn over a 5-year period. This covers professionalism, clarity of services, commission bias and capital requirements for the whole of the retail financial sector, including intermediaries (a broader population which includes IFAs), banks and providers. The total initial costs to both intermediaries and providers are estimated at £600 to £750 million. The proportion of these costs applicable to intermediaries is 18%, banks 30%, and insurance companies a further 37% with the remaining 15% due to other types of advisory firm such as stockbrokers.
Clearly any additional compliance cost for firms, and ultimately consumers, is a matter of concern to the FSA. However, the cost benefit analysis we have carried out shows the annual consumer benefit of RDR to outweigh the annual implementation costs. While we anticipate the ongoing annual costs of the RDR to be between £178m to £221m, this needs to seen in the context of the annual consumer detriment from the sale of unsuitable products, which we estimate to be in the range of £0.4bn to £0.6bn. We have been transparent about the implementation costs, but industry also has to be transparent about the cost to consumers of mis-selling.
In terms of market exits, Oxera12 estimated that, if new firms do not enter or existing firms do not expand, overall turnover would be reduced by 9%, the number of advisers by 11%, and the number of advised clients by 11% as a result of market exit.
This is supported by research examining the implication for individual advisers13 In terms of individuals, research indicates that 5% of advisers say that they were already due to retire by 2013, 3% of advisers will retire earlier than planned, a further 3% will leave the industry completely and 2% will take another role within the industry (the remainder gave no response). We conclude that, in economic welfare terms, advisers leaving the market would not create a net cost because the supply of advice in the longer term will not be affected.
Any dilution of the proposals will result in an increase in the cost to consumers through continued mis-selling.
Despite the vocal concerns of some in the IFA community, we believe the RDR is absolutely fundamental to address the root causes of numerous problems we have observed in this sector and to improve consumer outcomes. We will expand further on the points made in this letter in our written submission.
Hector Sants
13 December 2011
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Consumer Confidence
The FSA is the PROBLEM which has created lack of consumer confidence. Getting rid of these scaremongers will help everyone apart from the FSA staff. Who cares if they go?
Posted by: Incompetent Regulators Awards Team
Hector's House
Whilst I generally have no issue with the fundamentals of what RDR is trying to achieve, e.g Adviser Charging and greater professional standards, it's ludicrous of this man to not: a) enter into dialogue with the industry b) not consider the affect of the cost of implementing RDR to the consumer The whole process is now going to cost in excess of £1BN and it's not really clear who is going to benefit here. In reality its a fact that all parties to RDR will be financially penalised. I have to say that I find it unbelievable that one man can be so arrogant and mis-informed that he can stand up and say that he is right without any shadow of doubt. Can anyone tell me the qualifications Hector has to be able to make educated judgements of this magnitude - frightening!
Posted by: Phil
Is he deaf!!
good point the Doctor Who analogy we might as well have a dalek in charge of the FSA "Exterminate! Exterminate!"
Posted by: blockhead
Flawed
Lack of consumer trust in financial services has been precipitated by the regulators. They need such lack of trust to justify their existence. Sants brings in the Pensions and endowment situations from the past and bases part of his argument on that debacle. Problem is the whole 'mis-selling' analisys was flawed in itself, and therefore makes any judgement based on that flawed. 'Consumer detriment' is a blind. Everyone who buys anything suffers 'consumer detriment' in that the seller makes a profit, that varies. If the consumer might have bought the same thing cheaper somewhere else, clearly he has suffered consumer detriment - or has he? He may have chosen that vendor for reasons unknown to (in this case the FSA) and based on his individual values. This does not mean he has suffered any detriment at all - he has chosen what suits him. IFA's have a different responsibility. We are here to adjust the information assymetry and act as experts. The client buys our brains, our expertise and service. We have a professional duty. But for existing advisers our ability to do this is not accurately assessed by the RO exams as we will almost certainly have specailised especially to not do the wrong thing.
Posted by: Steven Farrall
ARROGANCE
Er, have I missed something? Since when has Sants has ever been concerned about costs? He's just on a mission to rid the world of IFAs; seemingly at any cost.
Posted by: Cynical Bloke
Or rather.....
FSA CEO Hector Sants has ruled out 'any dilution of the RDR proposals' in a personal submission to the TSC. He said any watering down of the proposals would result in "a dilution of his new empire and therefore a reduction in the possible level of his future remuneration and maybe even the threat to his knighthood". Has anyone remembered who was in charge at the FSA when the proverbial hit the fan? We all support increased qualifications - and we all want to get rid of the cowboys. But the current mentality is only going to lead us to our next crisis - as it is reactionary over-burdensome and bureaucratic. Even based on Mr Sants spurious statistics - and a large part of my degree was in Statistics, so I know for real that there are lies, damned lies and statistics - the potential loss to each person (based on the whole population of 60 million is £10 per person per year). Once again,I am not condoning this - and still believe that the FSA figure probably over-estimate the problem. But what it means is that the vast population will not get financial advice - see Barclays recent decision if you need any proof - and I cannot believe that £10 per year is going to make a difference to the general public. Whereas if we could get this sorted in a way that would benefit the average person then I believe that the upside would be far greater than £10 per year. But I doubt the FSA - or its' successor - will see the bigger picture.
Posted by: Simon Booth
Power corrupts
Hectar and the machine. Sounding more desperate as each week goes buy. Reminds me of Sadams Foreign Minister in delusional denial trying to convince the world that they were winning the battle for Iraq. Remember that?
Posted by: TSC insider view
It must be true!
It must be true, Hector said so. The worst thing is, he actually believes all of that.The RDR flouts EU regulation but Hector is bigger than that though. More imprtantly, what about the job losses and the effect on the economy. Regulation has not encouraged saving in any way,shape or form. No remuneration, no sales,no jobs , no savings,no future. I honestly don't know how one man can have so much power over an industry. At least Thatcher was elected when she destroyed the mining industry.
Posted by: Peter Taylor
When the Sants go marching in.
Well doesn’t this just prove that he’s in a world on his own? Heck Hector, why no proper comment on all the daft new divisions? If the market doesn’t work now – according to you – how much better will it work when you have entirely confused consumers? “My adviser is independent… or is he restricted?… maybe he’s just simple. But the advice is pretty basic.” His quote “improving the clarity with which firms describe their services to customers so that they know whether they are getting advice which is truly independent (covering the full range of possible investments) or is restricted in some way (for example advising on a particular range of products, or on products from one or a limited range of product providers)” is actually piffle. How does he propose to police these divisions? He doesn’t properly police the existing regime. Too many are trying to blur the issue between independence and the rest. Just imagine the mayhem with the new regime. I haven’t seen proposals for really robust disclosure of status. This is just hot air Hector! He goes on “We estimate that the average annual detriment arising from the sale of unsuitable products to be nearer the range of £0.4bn to £0.6bn.” And who is to say that this ESTIMATE will prove to be accurate? And indeed not withstanding your attempted smears how much of this is attributable to the Banks and direct sellers? At the start we have the usual regulatory fatuousness: “A market that was not working, and does not work, well for consumers, advisers or the firms which provide these products” What rot. Come and talk to our clients, they’ll tell you whether or not our services are of value. You yourself say that 70% don’t seek professional advice. Has it occurred to your patrician intellect that perhaps this is partially due to the cost of advice? A cost that is driven up and up by regulatory imposts! Proof that our clients – who are in the main regular and have been with us for years - trust us and value our service? Well we have been in business longer than the FSA. Product providers? Sure some are hopeless and (due credit to some of the regulations) regulatory and market changes will see them off. But there are a whole lot who seem to be doing rather nicely thank you. Just for example: From launch in June 2010 to Feb-2011 Jupiter shares made +65.7%. Schroder’s (Jan-09 to Feb-11) +111.5% Aberdeen – same period +80%. So don’t make broad statements which are just not true.
Posted by: Harry Katz
Factory Gate Pricing etc
I remain convinced that the biggest myth of all is the idea that the ban on commission will bring down the price of pensions and investments. I forsee similar prices with advice being an additional consumer cost and cartel rather than competition, as in the mortgage market. As for the endowment mis-selling smokescreen, that was largely a result of reduced returns due to low inflation, which in turn led to lower borrowing rates. I suspect that the story would have been dramatically different if returns had held up and it seems that the RDR is addressing the wrong aspects. Did many of the complainants increase their mortgage or endowment payments to reflect the changing risks, or did they just take more exotic holidays etc? I suspect that those who shouted loudest were those who were the least responsible about their finances.
Posted by: Stuart Duncan
Flawed system so flawed argument
The system is flawed and so is Mr Sant's argument. Will he be prepared to pay us compensation if miss-selling and fraudulent activities etc. does not reduce considerably as a result of RDR? I bet he would not put his own money on it. The system is wrong so the costs will continue to rise which will help keep Mr Sants in the lifestyle he has become accustomed to at our cost.
Posted by: Michael Fallas
Good and Bad in Any Industry
What Hector fails to realise is that the quality of any advice or product depends on the company producing it or the advisor giving it. You want everything to be homogenous when it can't be. Yes you might think that someone should have an ISA over and Investment Bond but some would think different. The same situation would be if you asked a gas fitter to put a new boiler in for you. One might think X is best while one might think Y is best and the cost different could be exceptional. It could turn out that the more expensive boiler is best. You seem to want every advisor to give the same advice and if this is the case, then print more advice trees and let the public get on with it. In the meantime if we could have some freedome to advise and stop all this box ticking.
Posted by: Bob Donaldson
Sants is very very bad; another blunder
Hector Sants' ignorance was not shielded from the TSC. He totally fails to realise that the IFA IS THE CONSUMER. His stats are therefore completely irrelevant to the IFA profession and must represent a mixture of different distribution channels and only those very few criminal IFAs who the FSA has failed to monitor correctly. Either Sants goes or the Ifa sector goes by the thousands so let's see who wants to see IFAs go.
Posted by: michael bates
Brown's RDR
Remember, Mr Brown, who called for one of his minions to come up with this RDR thing, remember - he save the world. He admitted that himself in Parliament...
Posted by: Ken Durkin
dilution of DR
this man needs to be brought behind his glass palace and shot he does not have any real idea how the process works. Also please remember many of the problems that have happened have been because of projected growth rates who are these set by the regulator you give a client a piece of paper that shows one thing but have to telll them in real terms its not worth the paper its written on and also remember people only complain about the product if they have lost money this can be caused by many things market condition, change in tax rules and retrospective changes what happends when no one is left to regulate give it a few years and everyone left will be following the Barclays no advice route other than very high net worth clients.
Posted by: robert Lundon
The self-delusion of the Corporate Policitian
In the world of corporate policitics is has always been true (and will continue to be so) that by some amazing extraordinary 'gift' of presenation or persuation, some outstandingly INEPT and talentless people do rise to the top !! Mr Sants is one of them !! If only we could understand what is sopposed to be so clever about this man that qualifies him to hold this position of CEO. Confirmation that fact is often stranger than fiction.
Posted by: Roger
RDR
The whole situation makes my blood boil. I'm currently studying towards achieving level 4 within the time frame. I'm under great pressure with balancing work, family and study commitments and it's wholly unpleasant. Admittedly, I delayed commencing with the studies due to believing that the RDR was so seriously flawed there would be no way it could possibly proceed when the coalition government ministers got involved. Surely David Cameron would stop the madness under the terms of the new 'fairness for all' statement!.... Even when I fully qualify, I have serious doubts whether I'll be able to sustain my business as most of my clients will NOT pay fees with VAT included. Also, the additional pressures from the FOS FSCS with levies raised at any time they feel like will further damage my business. This year, my employees have earned more that I have as my salary and bonuses have gone in FSCS levies! I'm also 55 so I have very little chance of getting another job and my staff will also become unemployed. Is it worth it? Are the FSA and government intentionally trying to destroy us or are they just plain ignorant and don't know what they're doing?.... As many of us have lost confidence in the FSA and MPs, I feel it's time to force THEM to improve their professional standards by studying. FSA staff involved in supervising IFAs should at least have QCF level 4 by January 2013 and MPs should surely have to study for a political degree.... Once qualified, MPs can then charge fees (plus VAT) to their constituents for services provided. There won't be anyone left at the FSA as they will all have to leave through not qualifying. Then they may appreciate what it's like to study pointless topics that bear no relevance to their daily activities. Most of the information studied to date I research prior to providing advice. Why do I need to memorise NSI products etc. etc when I can look them up. Many details constantly change so providing we know where to look them up then that should suffice. All new entrants into Nursing from September will have to be degree qualified. Does this mean current nurses will have to study or be forced to leave their jobs? No! They can carry on in their positions as their experience is deemed to have value. Any other industry would be up in arms about this. Because the FSA is above the law and answerable to itself then we have no redress. I take great pride in my honesty, integrity and professionalism. Taking further exams will not improve this and nor will charging fees. Why are we being treated so poorly?
Posted by: Angry!
Retail Disasters Resurrected
The FSA,s own research denies the suggestions of serious commission bias alleged here. I know that it is a trivial point amongst all the greater ones, but ever sinse PEP's and now ISA's, existed I cannot recall a single unit trust that pays more commission than the equivalent unit trust wrapped in an ISA. Indeed the reverse is the norm. Or have I been living in a dream world under this interesting regime of make it up as you go along
Posted by: alastair Lyon
Sants devoid of realism
Sants submission is stereotype of a civil servant with his head in the clouds. He might as well have written Das Kapital with Karl Marx. Justifying keeping the current deadlines by stating the industry has know for years about the qualification deadlines, he glibly ignores the fact that the FSA has only just issued it's list of approved qualifications. It has taken them more time to do this than we have left to take the exams. It also totally ignores the fact that we have had a recession, where most IFA's who care about there clients have working harder for less money helping their clients through the recession. At the same time we have been implementing TCF and other numerous directives, and changing our business models in readiness for RDR. As a business, we have been service based rather than sales based for over 15 years and these changes are not without pain for us. It takes years and years in a normal economy and yet the FSA is expecting all this to be achieved just after a recession and alongside many other directives. Totally devoid of Reality, as was Karl Marx.
Posted by: Chris Rule
Such a "SAD" old Hector
Mis-selling, mis-selling, mis-selling & and more mis-selling. Sounds like a stuck record to me, he needs to get himself an Ipod. The fact is all the regulation in the world will not stop those who wish to act outside the law. We know the death penalty did not stop murders. We know that this industry has more acess to knowledge and support than any I have come across, I am not ashamed to say; if I dont know the solution to a problem or an answer to a question I ask !! and I am sure a great many do the same. Will all this change post RDR ? "NO" is the simple answer.The TSC & Government should now be asking for his resignation he has taken FSA down the Cul de sac and is now clutching at straws to prove his point the man will not admit he is wrong
Posted by: DH
Peter Hamilton-Barrister is not even listened to by Sants
Peter Hamilton-Barrister made the following submission to the Treasury Select Committee, will Sants listen to any sensible person, NO HE WILL NOT! This is the view of Peter Hamilton Barrister in his submission to the Treasury Select Committee:- Written evidence submitted by Peter Hamilton Introduction 1. I am a barrister in practice at the above address. I have been involved in the regulation of the retail end of the financial services market since Professor Gower published his review in January 1984.1 At that time I was the company secretary and head of the legal department of Hambro Life Assurance plc.2 I returned to the Bar in the spring of 1991. Since then, issues arising from the regulation of financial services have formed a substantial part of my practice.3 2. In this memorandum I consider some of the merits of one of the three outcomes claimed by Hector Sants for the Retail Distribution Review (“RDR”) when he appeared before the Treasury Select Committee (“the Committee”) on 23 November 2010, namely: That there would be a better qualification framework for advisers as a result of the implementation of the FSA’s RDR proposals. Executive summary 3. I support the FSA’s aim of raising the standards of qualification for those new entrants seeking permission under the Financial Services and Markets Act 2000 (“FSMA”) to carry on business as a financial adviser. 4. But I oppose the proposal that all those advisers currently authorised and working satisfactorily must obtain the new proposed level 4 qualification (if not already so qualified) by 31st December 2012, or suffer the penalty of becoming disqualified if they do not. In other words, to adopt the expression frequently used in this context, the FSA will not permit the “grandfathering” of those advisers who are currently authorised and working if they do not have the new level of qualification by the end of 2012 and they will become disqualified from advising after that date. 5. In my respectful submission, the refusal to permit grandfathering is – (a) unfair; (b) retrospective in effect; (c) unnecessary; and (d) unlawful. For those reasons, the FSA should rethink its refusal to permit grandfathering. 6. Rather than forcing currently qualified advisers to acquire the proposed new level of qualification, it would be a better investment of time for those advisers to concentrate on keeping up to date in the areas in which they practise by 1 Review of Investor Protection, Cmnd 9125. 2 Later to become Allied Dunbar Assurance plc. 3 My full CV is available on request from the clerks@4pumpcourt.com. 139 appropriate continuous professional development. 7. I now turn to develop the above points, with the exception of the submission that the FSA’s position on grandfathering is unlawful. The argument on unlawfulness requires detailed exposition which is not possible in this memorandum. But I expect that the Committee will, in any event, be more concerned with the other points. 8. I deal with each issue briefly. But if it would be helpful to expand or explain any point further, I would be happy to do so. Unfairness 9. For the purposes of developing this point, let us take as a group the significant number of experienced advisers who are individually authorised by the FSA to practise as such, who are working in their own practices satisfactorily, without complaint from clients or the FSA, and with unblemished compliance records. 10. Individuals in that group will be maintaining their skills and expertise by keeping abreast of developments in products available in the market, ideas and the relevant law and regulatory requirements. Currently they are accepted by the FSA as being fit and proper individuals to be authorised as financial advisers. In the absence of serious complaint or breach of the regulatory requirements applicable to each one of them, they will continue to be fit and proper to be authorised until the last moment of 31 December 2012. 11. But the FSA, by changing the technical requirements for qualification for such advisers, claims the right to declare that all of the above group will no longer be fit and proper to practise – unless they have the new level 4 qualification – from the first moment of 1 January 2013. 12. That is logical nonsense. If a man or woman is competent on one day, and there is no change in his or her health or personal, or professional, circumstances, how can it be said that that individual has suddenly ceased to be competent on the next day? It is not the competence of the individual that has changed, but the FSA’s requirements for qualification. As the group are all qualified and competent, the new requirements should not apply to them; but only to new entrants. 13. It is unfair to require advisers to attain new qualifications on pain of becoming disqualified. Each such adviser will suddenly be deprived of his or her livelihood and the value of the hard-earned and existing goodwill in his or her practice. That will be the consequence, not of anything he or she has done or omitted to do in relation to a client, but because of a change of mind by the regulator which is imposed on the advisers. 140 14. If grandfathering were to be permitted for all currently authorised advisers it would not be unfair to impose new levels of qualification on those seeking to become advisers, because all such prospective advisers will have been given due notice of the fact that the levels of qualification will change on the day appointed in the future. 15. It is noteworthy that the governing bodies of several professions have in the past raised the requirements for entry for aspiring entrants, but have accepted that those current members should be grandfathered. The Bar is one example. I understand that when the nursing profession became a graduate profession, all nurses then already qualified were permitted to continue working as nurses. Retrospective in effect 16. The effect of the FSA’s proposals (as they now stand) is to disqualify an adviser without him or her having done anything wrong. The effect on the individual adviser will be retrospective, because he or she is being told that that adviser’s current qualifications are no longer good enough, no matter how good or proficient that adviser might in fact be. 17. As a public body, the FSA should not be imposing new levels of qualification in this way. Unnecessary 18. In any event, the proposal not to permit grandfathering is unnecessary in order to achieve higher standards of skill and knowledge for all advisers. 19. Under the general law applicable to all professions, including financial advisers, a professional person, when carrying out work involving matters of professional judgement for a client or patient, has a legal duty to act with reasonable skill, care and diligence. The standard of skill, care and diligence to be applied in order to satisfy the duty is that which would be exercised by a reasonably competent person in the relevant profession and in the same circumstances.4 A failure to reach that standard would mean that the professional would have been negligent. 20. After 1 January 2013, if a financial adviser were to be sued by a client for giving negligent advice, the essential question for the court would be whether the advice was advice which would have been given by a reasonably competent financial adviser in the circumstances. In such a case, the court will probably take a reasonably competent adviser to be someone who possesses the knowledge acquired in the course of obtaining the new higher qualification. It would follow that the adviser then before the court would be judged by the same standard. In other words, whether or not he or she in fact had the higher 4 See the direction to the jury of McNair J in Bolam v. Friern Hospital Management Committee [1957] 1 WLR 582 at 586-7. This is commonly referred to as the Bolam test. See also, for example, Professional Negligence and Liability, (Informa, 2010) at para 1.133 et seq. 141 qualification would not affect the way in which the court would judge the case. 21. It follows, therefore, that every adviser is required by the law as it stands today, to keep up to date and abreast of developments – at least to the extent that a reasonably competent adviser would do. Thus it follows further that even if an adviser were to be permitted to continue in practice without attaining the higher qualification by 1 January 2013, the law would judge his or her competence against the standard of someone who did have that qualification. 22. It also follows that to raise the standards of knowledge and qualification amongst advisers, it is sufficient for the FSA to raise the levels for new entrants. It is not necessary to require currently authorised advisers to requalify. The fact that the level has gone up for new entrants, in any event imposes on existing advisers the need to keep abreast of that development and its implications, to the extent relevant in relation to the area in which those advisers practise. Continuous professional development 23. If grandfathering were to be permitted, the emphasis of training would shift to where it ought to be, namely, to the need to maintain a relevant programme of continuous professional development (“CPD”). Most professionals tend to concentrate on certain areas of expertise. Very few, especially in the modern and increasingly complex world, remain up to date in relation to every aspect of that profession. Thus it makes more sense for a professional to keep up to date in the areas of particular relevance for him or her by means of a properly structured programme of CPD. There is little practical advantage to requiring a currently qualified professional to acquire, by means of a wholly new qualification, new levels of knowledge in areas of no relevance to the practice of that individual. The time would be better spent devoted to proper CPD. January 2011 142
Posted by: MJJ
Revolutions have started over less....
No tax without representation and a tax on tea.... So lets abridge what Peter Hamilton has effectively said. The FSA's actions are probably illegal. The dictators refuse to listen and remove the right to work form individuals allowed to work at 11.59 on December 2012 and the moment they provide advice on January 1st 2013, they will be commenting a criminal offence? Perhaps that is the first test. Give advice when one does NOT have the qualification, or perhaps even more appropriate, be chartered, but don't evidence it. Take my livelehood Hector and take my home when I have not lied or cheated. What should I take from you who has?
Posted by: Namless
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Sants personal TSC submission
It's not a bit of wonder we are having all these problems when this guy doesn't even know what year he is in. Does he know what day it is or who IFA's even are. Maybe he's a Timelord and he can travel back and forward in time. He may even think he is Nostradamus reincarnated.
Posted by: Captain IFA