I am not surprised to see the Association of Mortgage Intermediaries’ spectacular U-turn over the impact and ramifications for the mortgage industry of the Retail Distribution Review.
Its initial comment that “the mortgage market may be lucky to escape unscathed” is so big an understatement that we almost require a new word to describe just how far off the page it is. A few days later, AMI revised its view and described just one aspect of RDR – primary advice – as a bigger threat to the mortgage industry than regulation, which cost the industry £123m.
Just like the generation of people who remember where they were when US president John Kennedy was assassinated, for the 300-odd assembled senior industry figures at the unveiling of the Retail Distribution Report, this was our Kennedy moment.
The presentations condensed six months of reflection and consideration from the industry, consumer groups, trade and professional bodies seeking to address the causes of the problems in the retail investment market. And while the presentations didn’t mention brokers by name, it is fair to say independent financial advisers barely got a mention either.
Previous generations of regulators have shied away from tackling the root causes of the problems within financial services. After all, teams of experts have travelled the globe to find a better financial services model, to no avail. Too often there is a flurry of activity around the usual suspects of commission and mis-selling, but we inevitably find ourselves back with the same old flawed commission-hungry approach with front-end loadings and caveat emptor processes.
When it comes to RDR, the Financial Service Authority might well be reheating old debates around the usual issues, but I was impressed by the commitment and enthusiasm to drive us towards a new world of distribution. Whether this team has really applied itself to thinking the unthinkable is debatable, but the presentations were certainly disturbing – which is what we need as a precursor to a lively debate on the future of our industry.
Early commentary from the conference focused around independent financial advisers, with a recommendation that their qualifications and preferred remuneration method should dictate what we call them. To me this is a cunning ploy by the FSA to divert attention from the absence of any real alternatives to the distribution system.
Over the next few months, there will be a consultation where those of us at the coal face get our opportunity to comment on the proposals, and feed in our suggested solutions to address the broken advice model.
I was particularly interested in the presentations outlining regulatory dividend. This follows recent high profile FSA statements that directly authorised firms are not below the regulatory radar. I am delighted to hear it, but the resources required to police this territory are just not available.
Broadly, the concept of regulatory dividend that was outlined means you pay the proportional costs of regulating your business. While I’d like to think this would mean a reduction in fees for well-run, conscientious firms, I suspect a more likely scenario will be that fees will increase for those firms that are difficult to police – either because of their size or previous systemic abuse.
Nevertheless, regulatory dividend goes a long way to balance the situation. With responsibility aligned to risk, the better run and better qualified the business, the better the regulatory dividend.
Within 36 months, we could be operating in a new market dynamic and there is nothing to be gained by heeding AMI’s advice and burying our heads in the sand. It does concern us and will affect the way we do business, so we must participate fully in the debates and discussions that are to come.