18th November 2010

Retail Distribution Review - Problems & Solutions

The IFA letter of the week

The Problem

The Retail Distribution Review (RDR) appears to offer solutions to matters which the FSA has identified as problematic within the industry.

The FSA believes that the measures set out in the RDR proposals will provide for greater consumer confidence and engagement with the industry.

What is planned?

1. That all advisers attain the QCF4 qualification level by 31st December 2012.
2. That commission be removed from all investment and pension products by 31st December 2012.
3. That the industry continues to absorb stale complaints by virtue of the 15-year longstop defence being denied them..
4. That the definition of 'independent' be altered from the current workable and well understood version to one of dire complexity.

What will be the outcome?

Consumers will suffer substantial and unprecedented detriment due to the unintended consequences.

A substantial portion of the adviser population will leave the industry. Various surveys have been conducted and whilst there is no consensus on the figures it is obvious that adviser numbers will fall drastically.

• Robin Stoakley, Head of Intermediary Business at Schroders said,
  "I do see up to 30 per cent of the IFA market leaving".
• AVIVA Life marketing director David Barral has said the firm predicts by 2013 IFA numbers will fall to 10,000 in total as advisers fail to comply with RDR changes, leaving middle-market consumers unserviced.
• Shaun Crawford, head of insurance advisory at Ernst & Young;
  "The FSA's Retail Distribution Review will have the following effect: Of a population of over 30,000 advisers, many industry commentators are expecting at least a third to leave by 2012".
• Figures provided by Matrix-Data Solutions (in June 2010) showed there were 32,000 advisers in 2008. However, this plunged to 30,198 in 2009 and currently stands at 28,714
• A study by Oxera during May 2010 showed that a quarter of advisory firms could leave the market.
• Deutsche Bank commented;
  "Dwindling IFA numbers in the lead up to the implementation of the RDR will have a dramatic effect on the UK life industry. It will have a negative effect on new business volumes for insurers. There has been industry talk of 30% or even 50% of IFAs exiting the industry post 2012, which is not impossible."
• David Cox at Suuqea stated;
  "Two million clients could be left without an IFA after RDR - 40% could leave the industry."

If the adviser population falls by around 1/3 this will leave millions of consumers without an adviser. Some will migrate to other advisers but many will be left without a trusted source of advice. Please note that the advisers who deal with the smaller investments of the typical everyday client are the ones who are most impacted by the proposed changes.

The UK currently suffers from the largest savings, retirement and protection gaps in its history. It is essential that these gaps, and the current over-reliance on the state, are reduced. The UK can ill afford to lose 10,000 advisers, a catastrophe that will intensify the existing problems.

Read full article by Alan Lakey- IFA, Highclere Financial Services

FSA/FCA, Adviser Letter of the Week, RDR