2012: Consultation Paper 12/16
I spent the early morning in Kingston watching the flotilla and “The Gloriana” bearing the Olympic torch for tonight’s opening ceremony. The final leg of the journey to the opening ceremony is underway. Financial planners have been viewing the Olympics as a benchmark for the changes that are also being brought in from the end of this year. It will not be something that has much ceremony, but marks the end of the myth of free financial advice within the UK. I know that our clients never believed this myth and understood our approach to charge fees way back in 1999, well before Y2K and the Sydney Olympics in 2000.
The London 2012 bid was won back in 2005 when Tony Blair was still Prime Minister. It has involved 7 years of planning. A year later the regulator launched what we call RDR, so advisers have had 6 years to prepare. Like the G4S mess, I’m still somewhat shocked that for people that are meant to be planning finance for others, many adviser firms are not yet ready and will be unable to meet the 31st December 2012 deadline for “RDR”. Remember this is something that we have been ready for (bar a few tweaks) since our formation in 1999. Four Olympics will have come and gone in that time. I admit that it is no small task for commission based firms to change their business model, which for many involves completely changing the way they operate, but there has been ample time to get ready.
One of the obstacles that all adviser firms share is the rising cost of regulation which has risen dramatically. Regular readers of my blog will know that advisers have a very odd compensation system. Essentially bad advice is paid for (compensated) by the FSCS when a advisory firm collapses often because their professional indemnity insurance fails to pay up. Sadly there has been a lot of bad advice, mainly from the main Banks, but not entirely. This has involved selling products that were nothing like “what it said on the tin” (for which I have some sympathy for the advisers) but also some really bad advice too, which I simply fail to understand. The problem is that the rest of us have to pay into the collective bucket to cover this cost, which runs into many millions.
However, the regulator is reviewing how they (we as advisers) fund the FSCS. The Consultation Paper was published yesterday and by inference, input is requested. Some advisers believe that an additional product charge, like a form of insurance (yes insurance on insurance!) is the way forward. I’m not totally convinced by this. My main objection is the spiralling costs and the fact that good advice is effectively punished. To make matters worse, I believe that many firms are lumped together in a category of advice that doesn’t reflect how they work or what they do. Sadly some are suggesting that due to costs alone 30% of advisers will cease to exist within the next year. I think this is likely when combined with the other changes that start from January. So whilst I’m looking forward to the opening ceremony this evening, I’m mindful of the fact that my costs will be rising significantly, that our good advice is punished by the regulatory costs which are shared by a reducing number of firms. It also signals the end of good financial planning advice for most of the public who will simply find the process too expensive – something that we hope is not the same fate of London 2012.
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