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GDC Associates partner Derek Gair warns the RDR is more damaging to old-fashioned IFAs than newer firms.
When speaking to adviser veteran Derek Gair one is almost filled with a sense of nostalgia.
Gair stands out as a force of continuity in an industry in a state of flux. Very much from the old-school camp of financial advisers, Gair is a partner at Hampshire-based GDC Associates, which he runs alongside fellow partner Gordon Ede.
He is also a key member of the Adviser Alliance, established in 2009 as a not for profit organisation to protect freedom of choice for UK consumers which it thinks is threatened by the RDR.
The organisation was set up to provide a voice for IFAs in the UK and ensure any future legislation is fair, practical and protects consumers. It lobbies MPs and takes legal action to ensure any proposed legislation is independently scrutinised.
Gair has been a practising IFA for 30 years, during which time he has witnessed a lot of changes in the industry. But he points to one aspect that has remained constant.
“The industry has been guilty of making the same mistakes,” he says. “It goes around the same loop travelled before. It is so cyclical you can almost see what is going to happen next.”
Gair says his experience of the industry helped him to predict the collapse of the banking sector and he believes the financial crisis was “inevitable”.
He adds: “When large US banks were offering 90% sub-prime mortgages without requiring the need to prove income, you did not need to be a genius to work out such a situation was not sustainable.
“The days of bancassurance proved banks were not the saviours of the industry and were not going to take over the world. We are going around the same loop again.”
Gair’s business is built on solid foundations: simplicity, tradition and client loyalty. GDC Associates launched in 1983, has two advisers (himself and Ede) and a loyal customer base.
The firm offers protection, savings, pensions and mortgage advice.
Gair likes to keep tight control over the business, choosing not to outsource any parts of the business or use multi-managers. Very much commission-based, the firm has virtually no fee income other than mortgage property fees from lenders.
GDC targets the mass market. Gair says: “We aim at the average man in the street: the 95% market. Anyone aiming for just a small segment of the market is foolish. But if you can manage to do good business from just 5% of the market, then brilliant.”
His business model has undergone little change over the years and Gair sees no pressing need to harness the technologies of communication the modern age has brought.
“We are a bit of a dinosaur because of the nature of our clients,” he acknowledges. “Most of our business is ongoing business with existing clients. When we get new clients it is generally a result of referrals from existing customers.
“We had a website but took it down because it was not really attracting new clients, and those clients it did attract were not the type we wanted. So the website was not the success we thought it would be.
“But technology-wise, obviously we use email and deal with lenders and providers online and do very little manually. We also use LinkedIn. But we are not at the beck and call of technology because first and foremost; we are a people business.”
However, GDC does use Skandia Investment Solutions for its wrap needs.
“It is useful for single premium investments, ISAs and occasional pensions,” he says
Gair rejects the argument advisers should use more than one platform to be ‘independent’.
“A platform should give you access to a wide range of investment options anyway, including OEICs and unit trusts, making it unnecessary to have lots of different providers. As long as it is not ridiculously expensive you should be able to do all your business on one platform.”
With a solid, traditional business model that has built up a loyal customer base, Gair is reluctant to implement changes being forced on him by regulatory requirements.
When the subject of the RDR comes up, he launches an impassioned assault on the FSA’s set of proposals.
“Business-wise, our biggest concern is what the regulator is doing,” he says. “The RDR is more damaging to old-fashioned IFAs than to firms who have been in the business for five minutes.
We do not want to change, we have no reason to change and our clients do not want us to change. However, this regulatory meddling might force us to change.
“I strongly believe the RDR will not do even remotely what it is meant to do. It might have good intentions, but it does not address what it is meant to.”
Gair has one particular bone of contention about the new regime.
“A recent survey I read suggests clients with saving and pensions will not pay fees – that is hardly rocket science. The RDR misses the mark entirely. Anyone who advises people on a regular basis must be rewarded. People do not buy these products; they are intangible. They are sold these products.”
He thinks the RDR will be detrimental to the mass market.
“It is not going to protect 95% of the population using IFAs. These people will not be able to afford the cost of advice. So if it ain’t broke, don’t fix it! There is a lot of misinformation around commission bias, as there is with qualifications.”
Gair himself has FPC 1,2,3 and CMAP qualifications. However, he thinks qualifications count for little.
“It is nonsense to say if you are not qualified to a certain standard you are not competent to do the job. There are bad eggs in every industry: bad lawyers, bad doctors, bad accountants.
“The regulator is there to regulate people that do not toe the line. It is this blanket approach I object to. The RDR is a sledgehammer to crack a nut. It is taking up a lot of people’s time and is fundamentally flawed.”
Gair’s grievances with the FSA’s proposals are entrenched. There are few aspects of it that escape his criticism.
“The FSA says all self-certified mortgages are bad, but that is nonsense,” he asserts. “Where the distinction needs to be made is where self-certified mortgages are done on a sub-prime basis. In terms of prime self-certified mortgages there are no more problems than with prime mortgages themselves. But there is obviously a massive difference with sub-prime self-certified.”
With such choppy regulatory waters ahead, Gair is going into survival mode.
“You can’t put a strategy in place with a market like this. You just have to put your head down and let the storm blow through. I think most of the industry is in for a tough time.”
He thinks his mortgage clients are in for a particularly tough year.
“I am getting enquiries from people who want mortgages, but for the first time in my memory I cannot help them,” he says.
“Lenders are making it more difficult to lend and do not want to lend more than 90%. Young people looking to buy their first house just cannot afford the equity. How many first-time buyers now have £20,000 to £30,000 in their bank accounts?”
He thinks the outlook for private pensioners is grave, too, and is critical of the Government’s handling of the sector.
“The Government is meddling in things it shouldn’t poke its nose into. Its approach to pensions is appalling, and stakeholder pensions are the perfect example,” he says.
“A pension needs to be sold. And if there is no reward these products won’t get sold. The vast majority of people have no pension savings. ISAs don’t cut it because they don’t encourage a long-term saving ethic. The savings ethic has sadly disappeared. It is a commission argument but also a question of perception. People need to have the benefits explained to them and have products sold to them, and to do this you need to reward the people selling these products.”
With regard to the broader economic climate, Gair thinks it is too early to be popping the champagne corks and celebrating the end of the recession. Despite statistics showing the UK exited recession last year – albeit with minimal growth of 0.1% in the final quarter – he thinks economic conditions are far from stable.
“I don’t think we are out of the woods and I think the tail-end of the recession will be more damaging than the recession itself. Although there are a few encouraging signs, this year could prove to be very tough.”
But Gair has seen worse.
“The early 1990s was difficult but very different. Would I swap the early 90s for now? No, then you had a slowdown coupled with massive interest rates.”
In terms of where he sees growth this year, he has his eyes fixed on distant shores.
He says: “Equity funds are still relatively cheap. I see continuing strong demand in emerging economy equities. Ultimately, emerging economies will be the power houses in the equity markets.”
Investors would be wise to listen. Derek has a knack of making the right predictions.
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| Comment | Adviser Focus: GDC's Derek Gair |
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what can older IFAs do now?
Interesting article and much of it is what I have been saying since the FSA invented the RDR as their idea of regulating this industry! I have been an IFA for 2 years less than Mr Gair and I agree with hime that the RDR will cause more problems for clients that it solves. I have no intention of taking exams to say I belong to a 'profession', but I have always carried out my job perofessionally. Will there be a job IFAs like me can do when we are forced out of our livelihoods by the FSA at the end of 2012?
Posted by: Derek Vivian
Change
There is no doubt that "simplicity, tradition and client loyalty" are important bedrocks for a successful IFA business. But so is the ability to adapt to change. I heard it expressed really well this week at an IFP meeting where the speaker quoted (I believe Jack Welch of GE) who said somthing like- "When the external rate of change exceeds the internal rate of change in a business the end is in sight" Denying the advance of the internet and misquoting the RDR stance on adviser charging (it is not about fee charging it never has been!)and failing to see the interaction between relevant experience and relevant qualifications strike me as ignoring the external change and that represents great risk indeed. Simplicity, loyalty and tradition alone are about to get steam rollered by the external rate of change
Posted by: Nick Bamford
Foolish the IFAs that don't agree
Derek We know each other and you know that I would agree with your views as mine is the same. Any IFA who thinks differently and agrees with anything the FSA represents or has done, is fooling himself. We IFAs are not that clever, we are not wealth or fund managers but distributors of what were fantastic products to the public before we had interference. So for those few on their moral high horse, get off it pleasea syou are spoiling what we really represent. The IFA logo was introduced by IFAs and now stolen by the FSA. They have no right to this as they have no understanding of what 95% if IFAs do!
Posted by: paolo standerwick
To Nick Bamford
Forgot to mention to Nick Bamford. Warren Buffet doesn't even own a computer, say no more. So your argument falls apart totally about technology. It takes all sorts to do business with clients who have all sorts of ways they wish to but from us. You do it your way and I'll do it mine. If technology is a must it's because we've been pushed into it by the big boys and regulations. In fact technolgy may have been the instigator and facilitator of the banking collapse! There is always a downside to everything!
Posted by: paolo standerwick
How interesting - Just LIVE and LET LIVE
Those that broadly agree with my sentiments in this article should join up with the Adviser Alliance. However, I read the comments to my article from Nick Bamford. For the record Nick, I have absolutely no problem with you charging fees or whatever you like I just dont like people telling me that their way is best - its not. But hey if you're happy hey ho get on with it. The subject of technology - in my case it is simply my clients deal with me face to face thats it i am not interested in new faceless inernet clients. That is not to say that I do not encompass technology to help my business efficiency and therefore my clients own financial well being as I said I absolutely do in every respect. Fee charging will not work on regular premium business and therefore the savings/pensions/protection gaps so widely talked about (by people who have absolutely no idea what the hell they are talking about) will not get closed it is not the bloke with a £100,000 lump sum that will start to close the gap (or come to that the bloke with £10,000)its the bloke we encourage to put in a regular premium. If you then say well we dont deal with them we only deal with HNW - then best of luck to you (I however think that will be short-lived) I do and more importantly I want to like most IFAs I know. I have a rule of thumb when I judge people that has served me well "would I go down the pub for a pint with them " ? Now, for the record, AND I ADMIT IT - I went to school with ANDREW FISHER (same year same form same classes - left school the same day !!!)and guess what funnily enough I would go down the pub with him even though he talks with fork tongue as far as I am concerned. There are however a lot of Wealth Managers I have come across down the pub on their own.
Posted by: Derek Gair
Who is the Canute?
The major problem with the RDR is that it represents an amalgam of differing ideas which have been shoe-horned into a policy statement. In trying to alter the flow of events the FSA has bitten off far more than even its greedy and lunging maw can cope with. Adviser charging is but one aspect. I completely disagree with Nick in that change is perpetual and like most things some changes are warranted whereas others are pointless. Change for its own sake is dubious at best and foot-shooting at worst. Will adviser charging enfranchise consumers? Answer, some it will and some it won’t. When you consider that consumers like a choice and that the majority prefer the apparent fee-free virtues of the commission route we have the problem. Not only is the FSA forcing unwarranted change on the bulk of IFAs but it is also foisting a reduction in freedom on millions of consumers. If we believe that financial services is subject to the law of the jungle then, if the FSA and Nick are correct and fee-based advice becomes the premier route, those IFAs who retain a commission-only model will founder and disappear. We won’t need Canary Wharf edicts to achieve this. On the other hand, if the FSA and Nick are wrong, and consumers wish to have a choice of commission, commission offset or fees then irreparable damage will have been inflicted, yet again. Of course, FSA employees, civil servants and other quango inhabitants will sit back safe in the knowledge that their actions carry no personal financial penalty and, in many cases, the originators of these failed policies will be sitting snug behind some large beef Wellington as they discuss the finer points of their new non-exec directorship in the private sector.
Posted by: Alan Lakey
How nice to see...
... another IFA who is proud to serve the mass-market of ordinary people. One day the FSA might realise that it's probably more accurate to judge an individual's or firm's ethics by how much imporance they attach to treating the little guy right. Sure, everyone looks after the big rich clients - who wouldn't? But it's how you treat the little people that shows whether you've got the heart for it or not.
Posted by: Neil F Liversidge
Busier than ever
We've got potential new clients coming out of our ears at the moment who want advice and are willing to pay for it, either by commission or fees (I don't care which, so long as I am paid). The problem is, there are not enough ours in the day or thinking time (the time to put yourself in your clients shoes and mindset after doing your fact find). The RDR risks disenfranchising my potential clients by forcing me to take time out to study for exams which measure areas I do not even advise on. Extenral forces of higher minimum exams that remove advisers when the demand for something (your GP IFA)in between Certified Adviser and a bank/insurance salesman unless all the CFPS want to take on the middle earners we deal with is immoral. The worst thing is I don't even think the banks will pick up the advice gap parts of the RDR will cause either...
Posted by: Phil Castle
The voice of reason
Great piece, IFA like this are the bedrock of the financial service advice system. IFAs are not stockbrokers despite Sants view that qualifications would put them in that space. Simplicity, tradition is value that clients expect yet is often lost in the rush to fix what is not broken.
Posted by: The Bellweather
And who helps them sort out the financial muddles?
I agree with the overall thrust of Derek's comments and would like to add that the FSA has overlooked the huge problem that 95% of people have, which is sorting out the muddle their finances are in. They have no idea where to start usually, do not understand the intricacies of the plans and the rules surrounding them and haven't a clue where the original provider company is now or what they are called. They also cannot afford huge fees to sort it out. That is where the IFA that deals with the everyday person keeps the industry going, in sorting them out and helping them get straight. The banks can't and have no interest in doing so, let alone the ability to see to the root of the problems. If the FSA keep their attitude that all IFA's are in the wrong and need legislating out of business, God help the public who will have noone to help sort out the insurers and bank muddles.
Posted by: Lyn Cooke
RDR IS NOT CHANGE ITS REGRESSION
I think Nick Bamford is in danger of seeing RDR as change. It is not, it is regression to a past era when the financial world was dominated by tied sales forces to the detriment of the consumer. Change is not always progress, new is not always good, and financial distribution cannot be created by such an idiotic approach as RDR proposes to take. Our industry has evolved and the changes that have taken place have been normally small, but the accumulation of these differences over time has been responsible for the best method of distribution possible for intangible products. The laws of evolution also warns us that sudden change, without time to adapt can result in the catastrophic failure of a species – in our case the independent adviser. RDR is unnecessary, too much and too soon.
Posted by: SIMON MANSELL
RDR who does it help!
I have been trading since 1990 and totally agree with the comments. I deal with a full cross section of the general public and the payment of fees (at a level at any meaningful level) is not acceptable to the majority of my clients,RDR does not help my clients or the public in general.
Posted by: John Rowe
RDR and all that jazz
The remarks of Derek Gair echo the thoughts of hundreds , if not thousands of IFA practitioners. The FSA has failed the public, or should I more correctly state, the employed managers of the FSA have failed the public. If my practice could not only forsee but forwarn our clients regarding the ineviable outcome of the banks' lending policy. FSA STAFF should pay, not us.
Posted by: Terence P O'Halloran
RDR etc
Excellent piece, well presented and argued. A short poll among my clients with the question "would you sooner pay fees or continue the way have always conducted business?" brought a 100% response. Lets continue the we are. Qualification or competence? Both would be great but if I had to settle for one or the other, give me competence every time. Be it lawyer, accountant, auditor, actuary, policemen, fund manager, driving instructor, pilot, or the surgeon operating on my grandchild. It seems to me that it is simply not possible to trust FSA because in every single significant area where they have been required to act/guide/protect they have fallen down; their judgement is fundamentally flawed and that is because their understanding of FS is fundamentally flawed and that is because their own "experiences" differ wildly from the populous at large. They are reinventing the wheel and it looks like a hexagon.
Posted by: allan young
From the outside..looking in
I see some opinions, that is all they are. I can see both sides, none of them are 100% right 100% of the time. What you lot should consider is that the FSA thinks the RDR will produce more stockbrokers, have you ever met any who could be bothered to twist someone's arm to buy some life cover or some income protection (NOT PPI) when they can get fat flogging equities? The FSA also believes that allowing banks to flog products and earn a fat commission will end up with people having something which is ‘better than nothing’ despite the fact that more often that not nothing is better than ‘something’ that is a waste of money. The FSA believes that the RDR will create some 'professionalism', my experience of the wide diversity of adviser ability and scruples shows that it doesn't count for much in the scheme of things. I wish I could bring balance to this crazy market but you are all (regulators included) guilty of being part of the closed minds society: As the saying goes: "None so deaf as those who will not hear: Meaning: Nobody is more deaf than the person who decides he does not want to listen. Often used in reference to prejudice and intolerance.
Posted by: Balance Aforethought
RDR Thoughts
After 33 years in Financial Services, I like Derek am fed up with change for it's own sake. Will RDR really deliver a move from Sales based IFA's to truly impartial advice uninfluenced by payment type....I doubt it. Will it improve access to Financial Advice or encourage the General Public to get their finances in order....Certainly not. Will it cost small firms a fortune and reduce employment and investment in the sector....Yes. Like most Government initiated change it has major flaws and suffers from the law of unintended consequence. Most obvious is that the honest hardworking very experienced advisers who have never received complaints or sold products solely for what they earn out of them may be driven out of the business. Whereas younger inexperienced "Salesmen/women" who can pass exams will replace them. Is this good for clients or the industry? Having just finished my Diploma exams I can honestly say that I have learned nothing that would make me a better adviser or provide a better service to my clients. I have great sympathy with those who are struggling to come to terms with this whole area and like Derek think that the vast majority of IFAs give sound advice and excellent value for money. We are all aware though that there are those in our industry that damage it's professional reputation and provide poor value with no ongoing service or reviews and huge up front commissions being taken which cannot be justified by the work involved. If RDR solved this it might just be a good thing but I don't believe it will and "throws the baby out with the bath water" The industry should have it's own code of practice and ethics standards, expelling wrongdoers ourselves and then we would not have this Bureaucratic nonsense imposed from on high.
Posted by: Ian Couling
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At last
I couldn't have put it better myself. We also deal with the normal man in the street and the RDR will stop him taking advice. The RDR is fine for HNW but a stab in the back for the normal working man. The FSA has failed and it shows by the number of fines it is leveying. The banks destroy the financial system and the FSA kicks the financial advisor community. Why? They are run by ex-bankers. The previous leaders of the FSA are partly responsible for the current crisis.
Posted by: Chris Glen