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26/02/2009 - Time to Press Pause Button on RDR

Ken Davy calls for pause button to be pressed on RDR.

In a statement issued today Ken Davy Chairman of SimplyBiz said “I believe it is time for the FSA to press the pause button on the RDR as the world in which the RDR was conceived no longer exists. We are going through the worst financial and economic earthquake of modern times and the full impact needs to be properly assessed before the radical changes envisaged in the RDR are introduced. If this is not done there is a real danger that the RDR will create further confusion in the financial services sector and increase the damage to consumer confidence.

In calling for a pause I am not suggesting we ignore the progress that has been made but the reality is the RDR was conceived in a totally different environment to that which exists today and the full implications of the events of recent months are impossible to assess at the present time. The RDR proposals are not being developed in a vacuum and it is impossible to ignore the fact that we are facing a financial and economic crisis of unprecedented proportions.

The three main strands of the RDR proposals as they stand at the moment are increased professionalism, capital resources and revised remuneration.

The good news on professionalism is that there is already an unstoppable drive amongst financial advisers to become more qualified and I believe this will continue almost regardless of the speed with which the RDR proposals are taken forward.

Even before the current crisis the remuneration and capital resources proposals carried a significant risk of damaging both consumer savings and the advice sector as a whole. To compound those risks and uncertainties by proceeding with the RDR’s radical and untested changes before the return of stability and a more normal financial environment would be unwise in the extreme.

Whilst the proposed basic increase in capital resources from £10,000 to £20,000 may not of itself be unreasonable the reality is that in the current challenging market it will put an unnecessary extra financial pressure on small businesses for no material gain for either consumers or regulators. In the case of large firms where the increased capital required may run into hundreds of thousands of pounds the impact will be potentially much more serious and again just at a time when businesses and the economy need more help rather than more hurdles to jump.

Turning to the possible changes in remuneration it is clear that the implications and costs for providers are even more serious. The suggestion that clients and their advisers agree their remuneration in isolation and then have it deducted from the investment by the provider was a recipe for disaster which has been made even worse by the current economic climate. I believe that at the present time insurers should be conserving resources and strengthening their balance sheets rather than being forced to spend many millions of pounds on administration and system changes which are unlikely to deliver any real benefit to clients.

Even if there was absolute certainty that the RDR changes would deliver meaningful benefits to consumers I believe current conditions would demand a delay. In reality, with the exception of increased professionalism which is already happening, there is no certainty whatsoever that the RDR will deliver any real benefits to the average consumer or that it will be of the slightest help in narrowing the savings gap. It is therefore time to press the pause button on the RDR process and give providers, advisers and consumers as well as the FSA, the time to properly assess the new landscape that will emerge when the present financial upheavals have eventually subsided.

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26/02/2009 - Time to Press Pause Button on RDR