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Introduction Paul McMillan Editor, Money Marketing. What does the consultation paper say? Dan Waters Director of Retail Policy, FSA. The consumer’s viewpoint Kay Blair FSA Consumer Panel. A great leap forward … or more of the same?. Tackling confidence/ encouraging engagement.

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Presentation Transcript
slide2
Introduction

Paul McMillan

Editor, Money Marketing

slide3
What does the consultation paper say?

Dan Waters

Director of Retail Policy, FSA

slide4
The consumer’s viewpoint

Kay Blair

FSA Consumer Panel

tackling confidence encouraging engagement
Tackling confidence/ encouraging engagement
  • Trust eroding
  • Credit difficult to obtain for many
  • Property no longer savings fallback, creating wealth
  • Savings/capital/retirement pots diminishing
  • Poor interest rates
  • Unrelenting media gloom
what do consumers want from providers advisers
What do consumers want from providers/advisers?
  • Give the customer what they’ve paid for
  • Do not take advantage of the customer
  • Offer them the best product you can
  • Do your best to resolve mistakes quickly
  • Show flexibility, empathy and consideration
  • Exhibit clarity in all customer dealings
results have been disappointing
Results have been disappointing!
  • FSA continues to find financial promotions which fail to be ‘clear fair and not misleading’
  • FSA’s examination of advice on pension switching found that a quarter of firms gave unsuitable advice in over a third of the files reviewed
  • FSA has found that suitability letters are poor in many cases
  • In 2007, FSA found that only 15% of KFD documents were effective
we confess we have been worried
We confess – we have been worried!
  • Would the RDR leave the middle market stranded?
  • Would tied/multi-tied outlets be let off the hook and soak up an even greater market share?
  • Would labels be disregarded or meaningless and leave consumers exposed and vulnerable?
  • Would disenchanted consumers resort en masse to the internet and recklessly buy even more inappropriate products?
  • Would remuneration structures/sales targets continue to distort advice processes?
why we are enthused
Why we are enthused
  • Making it easier for consumers to understand services
  • Welcome the widening of product range –
  • Abolishing commission – freeing from provider, sales and product bias
  • Separating advice from sales
  • Increasing professional standards and ethics across the board
retail distribution review like a jigsaw but all the pieces have to fit
Retail Distribution Review – like a jigsaw. But all the pieces have to fit

Labelling

Charging

Professionalism

Money guidance

Guided

sales

professionalism
Professionalism
  • Welcome new standards, application and Board (with consumer representation)
  • Will help engender consumer confidence
  • Have to be applied widely
  • But do standards go far enough?

Professionalism

independent versus restricted advice
Welcome clarity on labelling

Advisers need to advise and can sell

Sales people need to make recommendations

Independent advice is truly independent

Independent versus Restricted Advice

Independent advice

Restricted

advice

blowing your own trumpet
Blowing your own trumpet
  • What a great marketing/branding opportunity
  • But you need to make consumers more aware that independent advice has a value and is worth paying for
  • Hopefully trade associations will play a key role
fair adviser charging
Consumers know what the cost of advice is, how they will play for it and what they can expect

Transparency is key – consumers need to know what they are getting

Fair Adviser Charging

Fair charges

tackling incentives and remuneration
Commission bias removed from the system

Recommendations are not influenced by product providers

Tackling incentives and remuneration

Reward

simplified advice process
Cost of sales too high for middle market

Guided sales a real possibility

Mitigate risks to acceptable level, ensure ‘right’ kind of product

Simpler process, products, good outcomes?

Simplified Advice process

Guided Sales

why we like guided sales
Why we like guided sales
  • Need for a low cost advice service
  • Panel supports development of both guided sales and focused advice
  • Hopefully market big enough to sustain this, despite all caveats about it e.g. EU legislation, industry scepticism
a welcome addition
Needs to have ‘teeth’

Real opportunity

Where does advice on personal accounts/ DC pensions sit?

Interaction with benefits system

And don’t overestimate results of financial capability programmes

A long term project that’s looking good

A welcome addition

Money Guidance

slide22
The provider’s viewpoint

Peter Williams

Head of Industry Development, AEGON

slide23
Back to the future ….

The provider’s viewpoint

CP 09/18

Dr Peter Williams FCII FPFS

Head of Industry Development, AEGON UK

my agenda
My agenda
  • Why the RDR
  • Channels & labels
  • Professionalism and qualifications
  • Remuneration
  • Adjacent markets
  • Widening access
background to the rdr
Background To The RDR

‘we have a system which serves neither the producer of the services nor the consumer of the services. It is doubtful whether it serves the intermediary either.’

Callum McCarthy, FSA. 2006

  • Current system fails to build long term relationships.
  • Present system has built-in incentive to churn.
  • Current process is detrimental to customers through product and provider bias.
  • Merry go round of ‘new’ business.
  • Aim – improve consumer confidence & trust
  • Aim – increase the numbers of consumers of our products and services
rdr roadmap a long journey
RDR Roadmap – a long journey
  • DP07/1 – June 2007
    • Based on work of industry groups
    • chartered, general, primary advisers; emphasis on reform and access
  • Interim Report on Feedback – April 2008
    • Independent “advice” and non-advised “sales”; clear preference for customer agreed remuneration; move from chartered to diploma-level qualifications
    • Emphasis on simplicity and clarity
  • Feedback Statement 08/6 – November 2008
    • Emphasis on pragmatism and a demanding timetable
cp 09 18 a success
CP 09/18 – A success?
  • On a balance scorecard basis the 165 page CP gets a thumbs up – but with some key areas of concern remaining
  • We like the certainty of the timetable – it is tough but achievable
  • We like the definition of independence and the pragmatic approach to platforms & wraps
  • We like the professionalism proposals – but further details are necessary – not optional
  • We like Adviser Charging – but the proposed ban on factoring is WORRYING
  • We need a solution to corporate that doesn’t distort the market
  • We need FSA guidance on the new Simplified Advice Process
  • We need to see more done to engage more consumers
  • Let’s look at the details………
channels labels independence
Channels, labels & ‘independence’
  • Independent advice
  • Restricted advice
  • Simplified advice process (was advised guided sales)
  • Basic advice – the resurrection of the dead ?
  • Non-advised services
  • New definition of independence – independent advisers will need to look wider than packaged products to include “retail investment products” (packaged plus unregulated collectives, investment trusts and structure products and new EU thinking on PRIPs). THIS IS GOOD
  • Platform, WRAPs, DIFs and panels under the spotlight.
professionalism and qualifications
Professionalism and qualifications
  • Few surprises – 6th March 2009 Qualification Update confirmed.
  • QCF Level 4 (this is the same as the 1st year of a bachelor degree)
    • No grandfathering -
    • Alternative assessment (WBA) now more an oral examination of technical knowledge (as per QCF L4 written exams)
    • 2012 timetable is challenging – unless you start now
    • IPSB – speeding up review to 2010 so that in place by end 2012
  • Tougher standards of CPD & new ethical code
    • Is the longer term aim still QCA Level 6 (Chartered Financial Planner) for new entrants? – we hope so
but what is meant by qcf level 4 qualification
But what is meant by QCF Level 4 qualification?
  • AEGON had called on the FSA to give 3 reference points – Level, content & size – the FSA responded with a qualification Update on 6th March 2009
  • So, we have the level – QCF L 4 – Very Good
  • We have the ‘outline’ content – regulation & ethics; personal taxation; investment & risk; application of technical knowledge; plus ‘specialism( and the FSSC are now developing the detail syllabus/requirements )
  • But we still don’t have the size – as a minimum AEGON has suggested using the national QCF definition for a Diploma – 37 Level 4 credits.
  • Confusion is likely . The CII’s Diploma is worth 40* QCF Level 4 credits
  • The ‘ifs school of finance’ has introduced a “Diploma” but even after adding a technical paper (to satisfy the 6th March requirements) , it is only equivalent to approximately 31 credits
  • The SII has just launched a Level 6 RDR paper (not a full qualification).
  • Others will follow - The market needs the FSA & FSSC to give us a minimum size.
  • * 40 QCF credits = 80 CII framework credits
providers are behind the cii pfs
Providers are behind the CII & PFS
  • The current CII Diploma allows you great flexibility - Select the Diploma papers that are relevant to you and your clients needs and then use CPD to gap fill
  • Providers are behind you, for example Aviva and Scottish Widows are offering academies, at AEGON we have sponsored the development of PFS study group material – study groups can substantially increase your chances of success
  • Advisers need to make the commitment and recognise that completing the Diploma takes hard work!
remuneration
Remuneration
  • Adviser charging is seen as a way of tackling bias and boosting public trust – we agree
  • FSA are aiming for a level playing field between independent & restricted advisers – this is vital
  • AC will also apply to GPPs where individual member advice given – but it would be better if AC worked at just employer level – we welcome the further consultation (views by 31 July)
  • We support the FSA code of remuneration practice
  • BUT we still have significant concerns over banning factoring
    • Customer detriment in smaller, regular premium cases
    • more difficult for some firms to transition, risking market capacity
adjacent markets
Adjacent markets
  • Corporate – it should be wider than GPP
  • AEGON believes it offers a vital access route to savings and protection for millions of people
  • Protection & mortgages
    • FSA looking at potential distortion if protection is ruled out of – but LESS protection business will be written if AC is adopted and factoring is banned
    • Mortgages being reviewed in Q3 2009
widening access
Widening access
  • For AEGON, this was always the key success factor for the RDR. We believe people need decent products to secure their financial futures, and that they should have a wide range of routes to get the help, guidance and advice they need before buying.
    • We support Money Guidance (recommended by the Thoresen Review) and are therefore pleased that CP09/18 includes this
    • We believed that advised guided sales (now called simplified advice process – SAP) could play a part and are pleased that the FSA are willing to consider guidance – this is vital. However QCF L4 seems high
    • Increased professionalism and more trusted ways of paying advisers will encourage recruitment, but we need more work on bringing new blood to the sector. Our work with the Yorkshire IFA Forum and Bradford University School of Management, is one approach
  • As it is, we fear the lack of clarity on SAPs and the difficult transition on exams and remuneration could shrink capacity, with the mass market bearing the brunt.
what should pfs members be doing
What should PFS members be doing
  • Firms (and individuals) should work out exactly what qualifications their people hold and what they need to do to meet the RDR.
  • For advisers who will still be in the business in 15 years – your target is Chartered not Diploma
  • Build a marketing strategy based on how you want to operate in the post 2012 world.
  • Review your wrap and platform propositions, and any distributor funds, to make sure independent status isn’t challenged.
summary
Summary
  • CP09/18 has the potential to be positive for the industry, profession and most importantly – the consumer
  • However the FSA now needs to listen to the industry as this is the first formal opportunity post the November Feedback Statement. Issues raised today – including Factoring, Corporate business, Protection and qualifications – all need resolving.
slide37
This information is based on AEGON UK’s initial assessment of the proposals outlined in CP09/18.
  • Scottish Equitable plc is authorised and regulated by the Financial Services Authority
slide38
The IFA’s viewpoint

Chris Cummings

Director General, AIFA

slide39

“Yes, but no, but maybe, anyway shutup!”

Vicky Pollard

The “Bob Dylan” of our age

agenda
Agenda

The road ahead

  • The public policy agenda
  • Why would you start from here?
  • Politics
  • Religion
  • Money
  • Regulation
  • But does it work?
  • The good news
why do we need rdr
A nation

Under-saved

Under-protected

Under-pensioned

But

Over-indebted

Fare-well state!

Regulation

Cost

Retrospection

Risk

Too few…for the few

Industry?

Issues

“Complification”

Reputation

Consumers?

Alienated consumers

10M people affected

Supply & demand

Means testing

Why do we need RDR?

Public policy realities

why do we need rdr1
Why do we need RDR?

Why doesn’t the FS market work?

  • Mistrust
    • The industry
    • The regulator
  • Government policy
    • St Augustine of Hippo
  • Hasn’t it worked rather (too) well?
    • Democratisation of credit
    • Focus on distribution
  • “da mihi castitatem et continentiam, sed noli modo”
why do we need rdr2
Why do we need RDR?

Why doesn’t the FS market work?

  • Is COB regulation is the wrong hammer?
  • Time to change architecture?
    • Counter-cyclical regulatory structures?
  • “da mihi castitatem et continentiam, sed noli modo”
why do we need rdr3
Why do we need RDR?

What was the RDR supposed to do?

  • 6 RDR outcomes:
    • Consumer clarity on products and services
    • More consumers to have needs and wants addressed
    • Standards of professionalism that inspire confidence
    • Remuneration that works in favour of consumers
    • Viable industry over long term
    • Regulatory framework that doesn’t stifle innovation

“The budget should be

balanced, the Treasury

should be refilled, public

debt should be reduced”

Cicero

why do we need rdr4
Why do we need RDR?

Wouldn’t start from here…

  • FSA research
    • “Financial Capability: A Behavioural Economics Perspective” (CR 69)
  • Procrastination
    • Hyperbolic discounting
    • Postpone a cost, even one that generates high future benefits
  • Regret / loss aversion
    • Base future on what could had in past

“Good resolutions are useless

attempts to interfere with scientific law…

The result is absolutely nil.”

Oscar Wilde

why do we need rdr5
Why do we need RDR?
  • Mental accounting
    • Artificial budgets
    • Savings and borrowing
  • Status quo bias
    • Stick with current choices
  • Curse of knowledge
    • Inappropriate / unimportant data

“Good resolutions are useless

attempts to interfere with scientific law…

The result is absolutely nil.”

Oscar Wilde

the rdip in focus
The RDIP in Focus

Four types of advice

  • Independent
    • WofM – broader definition
      • Retail Investment products
      • Specialist areas remain
      • Panels, broker OEICs remain
      • Thematic review of platforms…
    • Adviser Charging
    • QCA Level 4

“Philosophical treatise on football.”

Jean Paul Sartre

the rdip in focus1
The RDIP in Focus

Four types of advice

  • Restricted
    • Not WofM
    • Adviser Charging
    • QCA level 4
    • Written & Oral Disclosure
  • Simplified
    • ….. But simple to do!
  • Basic
    • Not Adviser Charging or QCA Level 4

“Philosophical treatise on football.”

Jean Paul Sartre

the rdip in focus2
The RDIP in Focus

Adviser Charging

  • Applies to
    • Independent
    • Restricted
    • Simplified
  • Process
    • Charging structure to be presented – Menu?!
    • Not vary “inappropriately” between providers / products
    • “No” to commission rebating
    • Adviser factoring allowed
    • Variable retainers allowed (increase / decrease over time)
  • Payment
    • Advice cost
    • Product cost
    • On going services cost… or Statute of Limitations?!
      • Except for regular premium business
      • No retrospective ban on trail!!

“When it comes to money,

everybody is of the same

religion”

Voltaire

the rdip in focus3
The RDIP in Focus

Provider Issues on Charging

  • Providers
    • Proposed ban on provider factoring
    • Yes to different “factory gates”
    • Must offer flexible charges
      • Advisers & consumers must have choices
    • Validate and monitor Adviser Charging
      • Consumer instructions
    • Banned from marketing that breaks “decency limits”
    • No to commission rebating; 100%+ allocation rates
    • Providers needn’t offer Adviser Charging deduction
    • “Vertically integrated” firms must allocate expenses fairly
    • Inducement rules strengthened
      • Incentives must explicitly enhance service
      • Training etc to be “widely available”
      • Firms cannot accept “mission critical” IT etc
the rdip in focus4
The RDIP in Focus

Professionalism

  • Qualifications
    • No grandfathering
    • QCF Level 4 for all advisers
    • Core subjects
      • Regulation & ethics; personal taxation; investment principles & risk; case study
    • Existing level 4
      • CPD gap filling
    • Alternate assessment
      • 30.6.09 – 31.12.2012
      • Rigorous assessment
  • Professional Standards Board
    • Consultation to be issued shortly
  • Code of Ethics
  • CPD requirements
    • The looking-glass war

“I believe that banking institutions

are more dangerous to our liberties than standing armies”

Thomas Jefferson

the rdip in focus5
Hanging questions…

When the rubber hits the road

Commercial realities?

Adviser fall out?

Factoring:

Ways around?

Cost to consumer?

Impact on firms

Big getting bigger?

Niche?

More work to do

GPPs

Annuities

Professional “Stranded” Board?

GI read across

European read across

PRIPs / MiFID review…

Article 4 exemptions?

Politics

General election year

Future structures

FSA?

Bank of England?

Lamfalussy Authorities

Does this work?

Does it met the objectives set?

PIR.. Not RIP!

The RDIP in Focus
cost of regulation
Cost of Regulation

Regulatory budgets 2009 / 10

  • OFWAT = £18.7million
  • OFGEM = £36.1million
  • OFCOM = £136.8million
  • Food Standards Agency = £162million

FSA = Annual Budget £415m!

RDR = One off cost £430m!

public policy issues
Public Policy Issues

What are the scores on the doors?

  • 6 RDR outcomes:
    • Consumer clarity on products and services
        • Product clarity unaddressed
        • Adviser on going service addressed
    • More consumers to have needs and wants addressed
        • Reduction in advisory numbers + higher charges
        • Simplified sales not brought forward
    • Standards of professionalism that inspire confidence
        • Benefit of doubt
    • Remuneration that works in favour of consumers
        • Consumers as price takers
    • Viable industry over long term
        • Builds value in IFA firms
        • Cuts new business strain on providers
    • Regulatory framework that doesn’t stifle innovation
        • Stability is needed
        • Regulatory dividends needed
the value of advice
The Value of Advice

Consumers trust IFAs!

aifa steps up
AIFA steps up

Business Transition Academy

  • Launches
    • July 2009
  • Target
    • Business owners / leaders
    • Not adviser qualifications
  • Challenge
    • Meet the requirements of the RDR
    • Run better businesses
  • Focus
    • Self diagnostic for firms
    • Business action plan
      • Proposition / strategy
      • Client segmentation
      • Cash flow plan
      • Transition plan
      • HR plan
    • On-going programme

“Preparing to leap tall consultation papers with a single bound”

questions
Questions

“I\'ll be glad to reply to or dodge your questions, depending on what I think will help our election most.”

George Bush

(not the one who’s a “W”!)

slide59
AIFA

The trade body for the profession

  • The Association of Independent Financial Advisers was launched in September 1999.  Our role is to successfully lobby the Treasury, FSA, government, the EU and other opinion formers and policymakers to ensure the regulatory and business environment is positive toward members. 
  • It is AIFA’s objective to play a critical but constructive role within the regulation process - offering insights from the "front line" of the market. 
  • AIFA is a non-commercial, not-for-profit trade body.  We exist solely to campaign for light touch and proportionate regulation and work for a positive market for members.

The slides and the information they contain are drawn from sources as indicated and are not for general reproduction.

slide60
The bancassurer’s

viewpoint

David Stuart

Director of Investment Advice and Products,

Barclays Financial Planning

key questions
Key Questions
  • RDR is it enough?
  • Do titles help consumers?
  • The role of the adviser and the role of the firm.
  • Adviser Charging – less risk or more...?
  • Simplified Advice Processes and Basic Advice?
  • What next?
rdr is it enough
RDR is it enough?

“RDR is expected to improve consumer confidence

by removing some negative perceptions of the

advisory process which undermine confidence and

often deter people from seeking advice. In the

longer term this may serve to narrow the savings

gap”

  • There is more to do on Financial Capability
  • There is more to do on demand creation
slide64
Do titles help customers or marketing departments?
    • Restricted
    • Focussed
    • Limited
    • Basic
    • Simplified
    • Independent
  • Restricted Focussed Simplified Advice?
  • Focussed Independent advice on pensions and restricted advice on investments?
what is the role of the adviser
What is the role of the adviser?
  • Relationship Manager
  • Financial Planner
  • Tax adviser
  • Investment adviser
  • Asset Manager
  • Behavioural Finance
  • Analyst
  • Trust specialist
  • Mortgage intermediary
  • Insurance Intermediary
  • All of the above?
does adviser charging reduce risk
Does Adviser Charging reduce risk?
  • Old Model
    • Insurance company pays representatives to distribute its products (suitably)
    • Trail commission and allocation rates used to spread cost and encourage persistency
  • New Model
    • Customer pays adviser to identify needs and select products.
    • Ongoing charges for ongoing service.
are simplified advice and basic advice the answer
Are Simplified Advice and Basic Advice the answer?
  • Basic Advice
    • No examination requirement
    • No adviser charging – as the market failures that Adviser Charging seeks to address have not been identified in basic advice?
    • Stakeholder Products….
  • Simplified Advice Processes
    • QCA 4….
    • Product solutions?
what next
What Next?
  • Ensure that each business knows what it will offer.
  • Identify the knowledge and skills needed to do this.
  • Be clear on what will be charged for and how?
  • Respond to the Consultation Paper.
  • Promote the value of savings, investment, and protection.
slide69
Where now for the

profession?

Fay Goddard

Chief Executive, PFS

my not agenda
My Not Agenda
  • Not labels
  • Not adviser charging etc…..
  • Yes- Professionalism
the personal finance society
The Personal Finance Society

The PFS is your professional body

c25,000 members

Strategy set by your Board – member directors

Member consultation shows:

Yousupport higher qualifications

Youbelieve RDR will lead to a more professional retail financial services market

Youwant mandatory membership of a Professional Body

will there be a fall out
Will there be a fall out?

Estimates from 10 - 40% (12% PFS)

Level playing field – not all IFAs

Options:

Exit financial services / retire

Change scope of advice (Mortgage, Protection, PMI)

Consultancy

Manager

Paraplanner

Mentor

biggest challenge l4 qualification can we do it
Biggest Challenge L4 Qualification Can we do it?
  • 14,500 Diploma holders
  • 16,200 bookings as at 30 June
  • 9,000 people starting Diploma for the first time (last 18 months)
  • 94% complete Diploma in 2½ years
  • 82% complete Diploma in 2 years
  • Alternative assessment
  • PFS and provider support

Yes we can!

existing qualification cii diploma
Existing Qualification – CII Diploma

CPD

Business Tax

JO3

80

Credits

Personal Tax

JO1

Trusts

JO2

Pensions

JO5

Inv’mt

JO6

Planning

JO8

Pensions

JO4

Sup’vn

JO7

L4

Top Up

Other Credits

Other Credits

Business Degrees (under 10yr)

Cert FP / FPC

e.g. G60, MAQ, etc

new qualification from 2010
New Qualification from 2010

New Diploma

New Entrant

L4

Additional unit(s)

e.g. pensions

Regs & Ethics

Personal Tax

Investment

Application

L3

Cert in FP

New Entrant

the profession
The Profession

Not just exams

Behaviour

Knowledge

Skills

Need high standards in all

professional standards board
Professional Standards Board

Independent - To build trust

Consistency - Qualifications

- CPD

- Ethics

Common terminology

PBs deliver to own sector

= Consumer Confidence

where next
Where next?

2010

New Qualification

New Degrees

College and Universities – CII Accreditation

2012

Established profession for

Financial Advisers and Planners

the profession today
The Profession Today

Chartered Financial Planners

1699 Chartered Individuals

234 CharteredFirms

Future Benchmark?

Led by profession

for the profession

for the public….

and finally
And Finally………

What the public say:

  • 96% think financial advisers should have a degree level qualification
  • 77% recognise and associate ‘Chartered’ with financial advice
  • 58% have greater trust and confidence in advice from a person who is Chartered

The future is gold – the future is Chartered

slide82
Close

Paul McMillan

Editor, Money Marketing

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