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Government debate on RDR is overdue

MPs’ comments at a discussion on the Retail Distribution Review only highlighted how little they know about it and advisers. It’s time they did their homework before financial services is changed forever


With a flurry of comment around the Retail Distribution Review and the Mortgage Market Review in the past week or
so it seems like the goalposts are already starting to move.

First there was the inaugural RDR debate in the House of Commons and it was clear from the various contributors that MPs had only a limited understanding of the impact of the RDR.

It is worrying that with just little over a year before the RDR is meant to be implemented the government is only now starting to debate what will arguably be the biggest shake-up in financial services since polarisation.

MP Harriett Baldwin commented that she was astonished at the cost of implementation at £1.4bn to £1.7bn – an
increase of 180% compared with the forecast that was made in 2008.

She was also critical of the approach to qualifications, stating that the Financial Services Authority was taking a ’one size fits all’ approach to adviser education and that RDR was in fact a sledgehammer to crack a nut.

In response, Treasury financial secretary Mark Hoban made his now infamous comment that the current minimum qualification level for an IFA was equivalent to a diploma in shift management at McDonald’s.

This was neither helpful nor constructive and only serves to highlight the fact that some MPs have a lack of understanding when it comes to advisers.

Mark Hoban made his now infamous comment that IFA qualifications are like those you need for McDonald’s

I have no idea what the academic qualification level for shift management is at McDonald’s but I feel it is possibly disingenuous to denigrate it in this way – the clear implication being that the current qualification level for IFAs is worthless.

Qualifications, while important, are not the panacea the government seems to think it is. Simply being able to pass a particular exam does not
automatically mean that the adviser has the experience to advise clients. I think that more weight should be attached to industry experience and compliance records.

It is also worth noting that in many areas of financial advice specialist qualifications are needed. Many advisers have taken the option to specialise in a particular area of advice while still keeping their basic skills and knowledge up to date.

In circumstances where the adviser’s knowledge or qualifications are not sufficient in a particular area they will invariably refer clients to an
appropriate specialist.

So to apply a blanket qualification requirement is largely a blunt instrument and will only serve to make the high bar to entry in financial
services even higher.

This will create a paradox that is likely to undermine one of the reasons for the RDR in the first place – greater access to financial advice.

Confusion not clarity reigns on MMR consultation paper

Last week saw the publication of the Financial Services Authority’s second consultation paper on the Mortgage Market Review.

Compared with the RDR the estimated cost of its implementation is cheap at £50m, but there are a number of implications that could push costs up further.

The MMR consultation paper draws parallels with some of the proposals in the RDR and how they can be adopted in the mortgage market.
But some of these give the impression that they are being done for effect as the actual impact is less clear.

For example, the two types of advice being supported by the RDR, namely ’independent’ and ’restricted’, are also recommended for the mortgage advice sector but the definition of independent is woolly.

The paper states that “firms who label themselves as independent will have to source products from a comprehensive and fair analysis of the relevant market”.

I am not sure what that means or how it is measured. The paper goes on to say that there will be no obligation to charge a fee if an adviser is independent as they do under the RDR, thereby removing one of the cornerstones defining independent advice under the RDR.

The MMR also states that it wants to remove the Initial Disclosure Document and replace it with a clear guide for consumers regarding the scope of advice and how the adviser is remunerated.

This is pretty much what the IDD does at present. It also feels it would be in consumers’ interest to get rid of some of the additional paperwork by removing some of the IDD requirements.

But at the same time it says that if a consumer wants to add any fees to their mortgage an additional illustration should be provided to highlight the impact of this addition.

Qualifications don’t escape under the MMR, as the paper suggests that all those involved in selling mortgages – whether advised or non-advised – should be qualified to the same level.

I don’t disagree with this but again, an unintended consequence of giving someone selling in a non-advised capacity more knowledge might be that the lines between advised and non-advised become more blurred.

The MMR has a number of such inconsistencies which make it confusing for advisers and lenders.

In fact the Council of Mortgage Lenders submitted a response to the paper’s publication by asking the FSA to re-consult on the main points and implications of MMR before an opportunity is missed.


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