24th April 2017

We had to destroy Ben Tre in order to save it

For those not old enough to know too much about the U.S. involvement in the 1960’s Vietnam war, and some of the madness surrounding it, this quote has gone down in history as an example of the some of the insanity that was Vietnam. 

As with many examples of madness in what should be a sane world, this quote, which I was reminded of recently, is well worth considering alongside. It is Callum McCarthy’s six pillars of wisdom speech at Gleneagles in September 2006.

The so-called pillars on which RDR was to be founded were:

1.    an industry that engages with consumers in a way that delivers more clarity for them on products and services;

2.    a market which allows more consumers to have their needs and wants addressed;

3.    remuneration arrangements that allow competitive forces to work in favour of consumers;

4.    standards of professionalism that inspire consumer confidence and build trust;

5.    an industry where firms are sufficiently viable to deliver on their longer-term commitments and where they treat their customers fairly; 

6.    a regulatory framework that can support delivery of all of these aspirations and which does not inhibit future innovation where this benefits consumers. 

The Heath Report Two (THR2) had been created to examine the consumer detriment caused by the regulator’s actions in introducing the Retail Distribution Review. 

The Heath Report Three (THR3) will be published toward the end of May. 

As Garry said “It did not seek to be a learned academic document but to assemble in one place a clear description of what RDR has created and suggest lessons that might learnt”. 

In April 2014; the Panacea Team, Lee Travis, now at PFS and Garry Heath met the with the FCA which dismissed the survey of 1,752 advisers, representing over 50% of the direct authorised IFA firms, as “unimportant

At that April meeting, the FCA informed us that it would issue an internal review early in the autumn which we expected to be in praise of RDR.

In the end, the FCA commissioned European Consulting and Towers Watson to produce and issue two lacklustre reports, which were quietly released in the week before Christmas to a distracted media - hardly the action of a confident regulator. 

These reports suggested that there was “no evidence of consumer benefit” leaving the FCA to opine that RDR’s “longer journey will benefit consumers”. 

As Garry observed, this is reminiscent of Mr Micawber’s hope “that something will turn up”.

With the advisory community barely having the capacity to service some 10% of UK consumers financial planning needs and with the remaining 90% who do not want or cannot afford to pay for financial advice, we seem to be in a similar situation to the one described by Captain Miller's, US Army Corps of Engineers  Commander, Task Force Builder, 1968  46th Engineer Battalion  159th Engineer Group ,recollection of Major Booris’s reasoning for destroying a whole village with so much firepower.

In the case of RDR only one of the six pillars stands, number 4. And as we all know you cannot build any sustainable structure on just one pillar. It just falls down. The regulator has ensured that the other five cannot be built as the ground beneath it has been destroyed by too much regulator firepower.

In the Vietnam movie ‘Apocalypse Now’, Captain Willard, played by Martin Sheen, asks a seasoned vet while riding a helicopter over enemy terrain “why do you guys sit on your helmets”?

The answer could be the same reason why IFAs only have a 10% capacity for advice?

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