Press comment on RDR paper
The trade press widely referred to Stuart’s paper, Reforming the financial advice market: bridging the gap or widening the chasm, when reporting the Treasury Select Committee’s report on its enquiry into the FSA’s RDR reforms. He has also been quoted in reaction to the TSC report.
Donia O’Loughlin, FTAdviser, focused on the question of accountability of the FSA to Parliament (which prompted the TSC’s enquiry): ‘Mr Fowler does not blame the FSA for behaving like an unaccountable body. He said: “Parliament delegated powers of consumer protection to the Treasury who delegated it to the FSA, so therefore it is a mistake to say that the FSA is not accountable as it was up to Parliament to take and keep control. Parliament should have said that in any situation where regulation involves significant market intervention the FSA needed to come back to Parliament. It is too late, but whose fault is that? Parliament has itself to blame.”‘
Under the heading Fowler Drew: RDR will almost certainly disappoint, ifaonline quoted Stuart’s report’s conclusion that ‘RDR is bound to disappoint because it will fail to meet its public policy objectives and widen the advice gap’ – although the paper in fact attributed the policy objective to the 2002 CSFI working party report, not the FSA. The paper argues that the FSA was at fault for never paying enough attention to the importance of access to advice and never explicitly addressing the trade off (via costs) between quality and access.
Financial News (registration required) reported Stuart’s paper report under the headline ‘Adviser slams RDR ahead of Government review’ but the opening point, that the quality of advice consumers receive would decline, was not in the paper. The actual point was that a commission ban will improve outcomes by weakening incentives to give anything other than the best advice but there is no evidence higher qualifications for advisers will itself improve outcomes.
FT writer Charlie Thomas, writing in Pensions Management about the TSC’s findings, gave an accurate summary of Stuart’s position: ‘Fowler is concerned, as many IFAs are, about the middle-income, no-asset clients. Among his conclusions are that RDR will actually accelerate a widening of the ‘advice gap’ that stems from its difficult underlying economics, that the improvements in the quality of outcomes stemming from a commission ban are worth having, but there is still a risk they will not be obtained as the implementation proposals threaten to leak too much, and that with consultation on Simplified Advice not yet off the ground, it may be too late to rely on this to plug the advice gap.’
Stuart’s paper did not anticipate that the TSC would call for a 12-month delay to the implementation of RDR to January 2014. However, in a written answer to a question from one paper, he did consider what the FSA might usefully do with its extra year, as follows:
Make sure it minimises ‘leakage’ in its new commission regime (eg from legacy business and products bought via ‘platforms’ and fund supermarkets) .
Learn more about the non-IFA business models, notably wealth managers, commission stockbrokers and execution only brokers so as to identify better the likely impacts on these business models of its planned changes – and not just the impact of the ‘restricted’ advice label the TSC rightly told the FSA was a mistake.
Put more effort into developing a viable Simplified Advice solution to plug the gap left by pushing the advice model ‘upmarket’.