Introduction

Paul McMillanEditor, Money Marketing

What does the consultation paper say?

Dan WatersDirector of Retail Policy, FSA

The consumer’s viewpoint

Kay BlairFSA Consumer Panel

A great leap forward … or more of the same?

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?

• 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!

• 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!

• 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?

Delivering a Better World

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

Labelling

Charging

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 advice

Restricted advice

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 charges

Tackling incentives and remuneration

• Commission bias removed from the system

• Recommendations are not influenced by product providers

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?

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

Money Guidance

2012 – A Better World

The provider’s viewpoint

Peter WilliamsHead of Industry Development, AEGON

Back to the future ….The provider’s viewpoint CP 09/18

Dr Peter Williams FCII FPFSHead of Industry Development, AEGON UK

My agenda

• Why the RDR• Channels & labels• Professionalism and qualifications• Remuneration• Adjacent markets• Widening access

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

• 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?

• 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’• 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

• 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?

• 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

• 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• 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

• 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• 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

• 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

• 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.

• 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

The IFA’s viewpoint

Chris CummingsDirector General, AIFA

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

Vicky PollardThe “Bob Dylan” of our age

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

Public policy realities

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

“da mihi castitatem et continentiam, sed noli modo”

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

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 RDR?

“The budget should bebalanced, the Treasuryshould be refilled, publicdebt should be reduced”

Cicero

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

Why do we need RDR?

“Good resolutions are useless attempts to interfere with scientific law…

The result is absolutely nil.”Oscar Wilde

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

Why do we need RDR?

“Good resolutions are useless attempts to interfere with scientific law…

The result is absolutely nil.”Oscar Wilde

• Mental accounting– Artificial budgets– Savings and borrowing

• Status quo bias– Stick with current choices

• Curse of knowledge– Inappropriate / unimportant data

“Philosophical treatise on football.”Jean Paul Sartre

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 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

“When it comes to money, everybody is of the same

religion”

Voltaire

The RDIP in FocusAdviser 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!!

The RDIP in FocusProvider 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

“I believe that banking institutionsare more dangerous to our liberties than

standing armies”Thomas Jefferson

The RDIP in FocusProfessionalism• 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

The RDIP in FocusHanging 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!

FSA = Annual Budget £415m!

RDR = One off cost £430m!

Cost of RegulationRegulatory budgets 2009 / 10• OFWAT = £18.7million

• OFGEM = £36.1million

• OFCOM = £136.8million

• Food Standards Agency = £162million

Public Policy IssuesWhat 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

And now the good news

Consumers trust IFAs!High Level Trust Over Time

60

65

70

75

80

85

2005 2006 2007 2008

Tru

st

Ind

ex

Bank

Mortgage Prov

GHI

Life Ins

Investment Co

Broker/Adviser

Credit Card Co

The Value of Advice

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

AIFA steps upBusiness 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

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”!)

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.

The bancassurer’s

viewpoint

David Stuart Director of Investment Advice and Products,

Barclays Financial Planning

Retail Distribution ReviewKey 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?

Key Questions

“RDR is expected to improve consumer confidence by removing some negative perceptions of theadvisory 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

RDR is it enough?

• 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?

• Relationship Manager• Financial Planner• Tax adviser• Investment adviser• Asset Manager• Behavioural Finance• Analyst • Trust specialist• Mortgage intermediary• Insurance Intermediary• All of the above?

What is the role of the adviser?

• 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.

Does Adviser Charging reduce risk?

• 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?

Are Simplified Advice and Basic Advice the answer?

• 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.

What Next?

Where now for the

profession?

Fay GoddardChief Executive, PFS

My Not Agenda

•Not labels

•Not adviser charging

etc…..

•Yes - Professionalism

The Personal Finance Society

The PFS is your professional bodyc25,000 membersStrategy set by your Board – member directorsMember consultation shows:

You support higher qualificationsYou believe RDR will lead to a more professional retail financial services marketYou want mandatory membership of a Professional Body

Will there be a fall out?

Estimates from 10 - 40% (12% PFS)Level playing field – not all IFAsOptions:

Exit financial services / retireChange scope of advice (Mortgage, Protection, PMI)

ConsultancyManagerParaplannerMentor

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

Cert FP / FPC

Personal Tax

JO1

Trusts

JO2

Business Tax

JO3

Pensions

JO4

Inv’mt

JO6

Pensions

JO5

Sup’vn

JO7

Planning

JO8

80

Credits

CPD

Other Credits

L4

Other Credits

Business Degrees (under 10yr)

e.g. G60, MAQ, etc

Top Up

New Qualification from 2010

New Entrant

L4

New Entrant

Cert in FPL3

New Diploma

Regs & Ethics Personal Tax ApplicationInvestment Additional unit(s) e.g. pensions

The ProfessionNot just exams

Skills

BehaviourKnowledge

Need high standards in all

Professional Standards Board

Independent - To build trust

Consistency - Qualifications- CPD- Ethics

Common terminologyPBs deliver to own sector= Consumer Confidence

Where next?2010

New Qualification

New Degrees

College and Universities – CII Accreditation

2012

Established profession for

Financial Advisers and Planners

The Profession Today

Chartered Financial Planners 1699 Chartered Individuals 234 Chartered Firms

Future Benchmark? Led by profession

for the profession for the public….

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

Q&A

Close

Paul McMillanEditor, Money Marketing

Lunch