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"The RDR would be laughable if it wasn't actually being inflicted upon us."
There aren't many advisers without an opinion on the FSA's Retail Distribution Review (RDR).
But Alan Lakey is actively preparing for war against it and, in particular, proposals to introduce a new business model.
The sole practitioner at Hertfordshire-based IFA Highclere Financial Services has teamed up with two other advisers to form Adviser Alliance specifically to ward off what he calls the "RDR threat". Their plan is to force the industry out of its torpor and take action.
They are even prepared to take the FSA to the European Court of Human Rights over the proposed changes if necessary.
"A camel is a horse designed by a committee," Lakey quotes Sir Alec Issigonis, who designed the Mini back in 1959.
"That's what the RDR is - a malformed creature designed by a committee; a nonsense that would be laughable if it wasn't actually going to be inflicted upon us," he laments.
Not only is the proposed new system a threat to the financial services industry - Lakey believes about half of IFAs will not be able to survive as a result of the effective banning of commission - but it will cut off the availability of advice to those that need it most.
With middle-to-lower income workers accounting for the core of his client base, this is an issue close to his heart.
"As it is there is a massive under-purchasing of savings plans as people have been scared off by scandals and stock market falls," he says, highlighting a £2.3m protection income gap.
"These people need pension schemes, but they will not approach an adviser to help them choose a savings scheme when the cost to them may be £450 for just a few hours work," he adds.
With any other product, it is accepted that there is a wholesale and a retail price, but when it's a financial product it becomes taboo, Lakey persists, rejecting the oft-repeated accusation that commission leads to bias.
"A fee-based approach creates a barrier to a positive conversation," he says, drawing on the insights he gained in his first job selling insurance policies door-to-door for United Friendly, an industrial life office.
"Back in 1978, the people I called upon were the mass non-affluent. They invariably didn't have bank accounts and did not realise the weakness in their wealth management plans," he says.
"They didn't ask for a regular savings plan because they didn't know they needed one," Lakey adds, pointing out that 30 years later the way people behave toward their finances is not that much different.
"Some clients have been with me since 1981 and they may approach me for something specific, but then the conversation will turn to other areas and I can help them realise the gaps in their financial planning."
Examinations
His other beef with the RDR in its current form is the compulsory examinations. While he has no problem with the FSA wanting advisers to be better informed, he thinks it's absurd to ignore an adviser's tenure.
He takes the view that advisers with at least 10 years of experience should be able to continue trading and learning through regular CPD courses.
As it stands, with qualifications FPC1, 2, 3, he will need another 70 points to be able to work post-RDR, with no credit allocated for his 32 years advising on financial products.
In addition, with 85% of his business in mortgages and protection, he questions the structure of the new qualification system.
"It does not have the flexibility to enable individuals to focus on specific areas - they are primarily investment and pension exams and for a company where it barely represents 20% of our business it means that we will be studying and attempting to pass examinations which will not assist our clients and will also prove a burden in terms of cost and time consumption," Lakey argues.
But he is fairly confident that his firm will not succumb to the challenges posed by the RDR, mainly because of his focus on mortgages and protection, which currently falls outside the new regulatory regime.
"That also shows you the idiocy of the regime," he says. "So when I advise a client on their mortgage, life insurance and savings plan to pay off the mortgage, I must tell them that the lender will arrange my fee for the mortgage and the insurer will arrange my fee for the life product, but they need to pay me for the hour and a half I spent organising the savings plan. It is understandable the client may be a little confused."
What really frustrates Lakey is that the whole premise of the RDR is the public's mistrust of financial services provision, but that, he points out, is targeted at the banking and insurance giants, not the intermediaries.
In fact, he says he has recently gained a number of clients from banks, one this month who was suspicious of a PPI plan their bank was trying to sell them.
Apart from the RDR, which clearly throws up a host of challenges for Lakey's firm, he has also had to deal with a sharp decline in business as a result of the economic downturn.
"With fewer mortgages to arrange, that also means a drop in mortgage insurance, critical illness and income protection," he says. "For every mortgage I don't do, that costs me an average two other pieces of business."
To compensate, he has been active in generating new business from existing clients, conducting regular investment and pension reviews to highlight poor performing funds and high-charging contracts.
He has also been concentrating on clients who have pensions with companies that are now defunct, including Abbey Life and Royal Sun Alliance, taking the view that often performance suffers on funds that are closed to new business.
But one thing he doesn't do is venture into areas where he is not an expert and that includes complex pension and trust business, which he passes on to other firms.
Nor is he looking to expand, having been burnt before by a business partner ripping him off. He says he is also keen to avoid the pitfalls of "having committee meetings to decide which A4 paper to buy".
This brings him back to his big bugbear of the FSA - an obsession with box-ticking and process.
"Like in 1978, clients want advice on the areas that do or may affect them and they want it in simple terms," he says. "Throwing swathes of paperwork at them does not make for happy clients."
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Mr
Good luck Alan, I am glad someone has the guts and dedication to challenge that useless bunch of overpaid parasites at Canary Wharf. They are the worst thing that has ever happened to the financial services industry. Their creation was another large nail in the coffin of this once great country, All the very best to you and your effort, David
Posted by: David
Not again!
Alan Lakey is a good and decent person. He also happens to be pre-eminent in his particular field as a mortgage and protection adviser, but when it comes to the RDR I feel he is way off beam. Yes, I agree that there are parts that are not very appealing, but if you look at the broader picture it’s all about improving standards. What’s wrong with promoting excellence? In our society at present we are besotted with dumbing everything down and decrying elitism. What’s wrong with elitism? We should be striving for the highest common factor, not the lowest common denominator – and that goes for our choice of clients too. I am almost reaching the point of hysteria when I see anymore comments about clients in not wanting to pay fees, not able to pay fees, not interested in paying fees or anything else. Now I know I am going to receive I tidal wave of opprobrium but I cannot for the life of me see what all the fuss is about, unless there is ‘something nasty in the wood pile’. Under the current rules we need to disclose how much commission we earn, so that’s not a problem. “So Mr Client, for arranging this particular piece of work for you I will earn £500 commission, which will be paid for by the firm with whom I place the business. In this case, because I am an absolute hero I am perfectly happy to rebate £100 to you and keep £400, the £100 will be used to enhance the contract to your benefit” Or something along those lines, you could even delete the rebating part! So far so logical I hope? Then why is it so difficult to have the following conversation? “Dear Client, from the work I am about to undertake on your behalf, I will charge £400. You have the option of either writing me a cheque for £400 or if you prefer, please sign this piece of paper for the product provider to indicate that you are in agreement with this fee and the product provider will pay this out of the product charge” In this way you and the client set the tariff – not the provider. What on earth is wrong with that? If it’s protection this may possibly result in a slightly higher premium to cover – if you want ‘up-front’ payment there will be factoring opportunities – independent of the life office. But should you still (or indeed ever) be relying on indemnity commission? It’s a nasty habit that allowed an unappealing third party to sit in the driving seat and to pay you less overall as a result. The only reason I can see that those who are complaining about fees is that in some way they are trying to hide the commission they obtain, hoping that the client doesn’t turn to page 456 on the key features or the illustration to find out how much he is taking. (I really can’t believe that of Alan – so I am all the more mystified about the fuss he is making). If that is the case then I do think these people should be less vociferous because what they are doing now is non-compliant anyway. If this is not what they are doing and they are fully declaring then I for the life of me cannot understand why they are making such a fuss. Can anybody please explain?
Posted by: Harry Katz
Some mistake surely?
If Alan has FPC1/2/3 and nothing else I think he needs 90 credits for his diploma, not 70. The FPC from 1995-2004 gets you 50 credits and you need 140 for a diploma. I've just checked this with the CII. When I read the article for a fleeting moment I thought I was home and dry with a deploma but no, I still need another 20! Sorry Harry but anyone who thinks protection can be included in RDR without killing the market and at least half the industry is seriously deluded.
Posted by: Neil F Liversidge
Alan, an honest man telling the truth
Alan tells the story that most IFA's know to be true. The trouble with some is that the FSA has been kicking them for so many years they believe being kicked is all part of being regulated. I know that at 5.20 pm on 08/10/09 there are 1,510 people who have signed a petition in agreement with Alans views and it is growing daily. The FSA is trying to wipe out half of the independent sector and there will be a backlash. SIMON MANSELL
Posted by: SIMON MANSELL
Director
I have every sympathy with Alan. Having come from a home services background I understand how the introduction of legislation in the 80's disenfranchised a huge percentage of the population leaving them with out any advice.RDR will increase this problem and push people in to taking policies direct that do not fit their needs. I am not sure I totally agree regarding qualifications, this is the one area regulation has benefitted the industry and consumer.
Posted by: Nick Clemens
partner
I think the problem with the RDR is thatit is trying to do too much in one go. 1. It does not matter how a person gets paid as long as the client is aware. With commission even now the client is aware under commission disclosure.All I think needs doing here is a declaration that the client has been made aware of how much commission/fees are being paid and agrees with the route being taken. End of argument over fees or commission. Qualifications. A bit like the above all being tried to be done in a short space of time. I think we should enhance our education but not under the threat of taking our working lives away if it is not done within a three year time frame. It could easily be covered by CPD in a formal manner.
Posted by: Terry Arch
Harry Katz 'not again'
I would like Mr Katz to explain how he suggests someone new to the business gets started.Does the throw away line regarding 'factoring opportunities' mean they can sell a life policy plus a loan. Mr Katz must sit on a big client bank with big renewals to make such comments,he certainly seems to spend a lot of time writing comments so maybe writing new business is not something he needs to worry about. For the new guy all the bills from the FSA,FSCS,FOS,PII,compliance providers,exam bodies,back office systems,research engines not to mention normal business and office costs are all up front hence the need for indemnity or as Mr Katz suggests sell the client a loan.Disclosure is not the issue as he implies.When you next buy a new car imagine the manufacturer seperates the distribution costs from the vehicle, so you get a seperate bill (with factoring opportunities) covering television advertising,the showroom overheads,the receptionist,the directors upstairs you never see,the cup of coffee and the servers wages,warranties, research and development,the service manager and finally the salesmans wages. You are then left with the impression that all this seperate money is actually going into the salesman's pay packet. You would be left thinking that the salesman was an overpaid thief,and that is exactly how the adviser doing new business is made to look with the RDR.Wealth managers do not need to face this issue. If we are having disclosure lets go the full hog and show clients just how much the regulator is really costing them,this could be covered under seperate 'factoring opportunities'
Posted by: David McMeekin
Life is hard
I was new to the business once. I did not take indemnity commission. I had to struggle. Why does it always seem to be assumed that you need no ‘seed’ money to start in Financial Services? Why are you entitled to wake up on a Monday and become an adviser? What other industry permits this? The trouble is that many of the critics have never run a business before. Whatever business you wish to start – you need finance. If you are widget maker you need money to buy a machine, the raw materials, the marketing, the delivery, the packaging, the factory rent AND all the other things an adviser needs in addition. Regulation? Factory Act. Health and Safety. Employment protection etc etc. Come ON get real. If you don’t have the funds you can’t start a business. If you don’t have the capital yourself, then get a loan – even if it means remortgaging your house. Alternatively you might be lucky in that your wife or partner has a good job and will help to take the strain of a start up. Otherwise stay employed, be successful and earn the capital. How much? Enough to see you through 2 years. I often wonder what makes people think they are even qualified to run a business – any business. You might be brilliant at selling life assurance or a terrific pension technician – but that does NOT qualify you to run a business.
Posted by: Harry Katz
Life sure is hard.
Sorry if I gave the wrong impression, I have been in this business over 30 years and am not bleating about my own circumstances. Rather than going into pompous ass mode and singing 'I did it my way' I have genuine sympathy for those young people trying to get started.There was a letter recently from a young chap who had gone to uni and completed a CPA and lamented that he would have been better off doing a degree in knitting for all the good it did him.He could not get a start with an IFA without having his own client bank.To date the lad has invested a lot of time in getting the education, has probably enough debt by way of student loans and no job to underwrite a start up loan to pay FSA and all the other costs up front.If you have been in the business for so long you will realize how difficult prospecting is unless of course you inherited a client bank.Imagine starting to prospect post RDR,could I reveiw your existing life and pension arrangements and by the way instead of maybe £2 extra per month on your policy you will have to pay me a fee of £600 (or take out a loan to pay me) whether you take a product or not. You have missed the point completely regarding overheads. Whether you make widgets or cars the overheads are a composite un-identified part of the cost of a tangible item that folk want or desire.Financial services is an intangible that people don't automatically assume need or desire for. For the RDR to create an in your face 'advise is going to cost you big money pal' is nuts. To portray separately all the overheads as the 'cost of advise' will create such a barrier to anyone such as the lad referred to above getting in front of new clients. In his circumstances would you take a loan or run up more debt to start a business with this regulator imposed millstone around your neck. I don't think so.
Posted by: David McMeekin
RDR - fair for ALL?
Personally i have no issue with the concept of RDR and qualifications - depsite the fact that i still have a couple of papers to take, although i do have an issue with the fact that i have to find the time (and money) to take qualifications on subjects that we refer to more specialist advisers. With commission disclosure and TCF already embedded in the advice process, surely RDR is completely unnecessary. The RDR fees structure only helps the HNW client who no doubt would have been guided toward the fee option under TCF (and the principles of TCF before it became an offical term. Mr & Mrs 2.4 kids and a dog need advice just as much if not more than HNW clients but they really cannot afford to pay fees for it. Those advisers that have chosen and made their business in 'wealth management' or similar have made the cleverest choice regards their own futures but this does not mean that those of us that are still prepared to try and assist 'normal' people should be criticised for it and certainly does not mean that all clients would be better off by losing the option to not pay fees.
Posted by: phil homer
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Mr
Alan, you are spot on here. I too run a small firm with two other partners. It's a grim time for us, and I have absolutely no doubt that the RDR, if and when implemented, will be catastrophic for smaller firms like mine. It's intersting for me to read precisely what I too had thought about the effect of RDR. We, generally, do not cater for the wealthier clients. But we are reliant upon 'normal' clients, like me. They are incredibly loyal to us. We therefore look after them. And we never charge any 'up-front' charges. Indeed,the amount of 'free' advice we pass on might be classed as ridiculous. But we think that it's in our and our clients' best interest to behave in this way. Put simply, I would object if a financial adviser told me that by the time I left their office it will have cost me a couple of hundred pounds. This silly 'one hat fits all' approach, coupled with the apt point that 'if it 'aint broke, don't fix it', simply amounts to regulation for the hell of it. Good luck to you, and please keep us all informed of your progress. Fergus
Posted by: Fergus Macpherson