Why RDR won't stop poor deals for clients
The recent brouhaha about aggressive tax avoidance is an absolute non-story in the financial world.
We all know there are three types of accountants – ones who are “decent” and go by the book, others who are the polar opposite and fly in the face of the law and the third type being the aggressive tax planner who operates in various shades of grey in the hope that their perfectly legal tax avoidance schemes slip by unnoticed by HMRC into a satisfactory outcome for their clients (who have no doubt signed a very broad waiver expunging the accountant of any potential blame as and when the scheme is outed).
Most of us on the inside know it is a systemic flaw rather than the fault of hard-working comedians.
What this type of coverage does do, however, is give me the chance to remind us all of the other cringing design flaws we all work with. Take commissions v fees, for example.
Despite the howls of protest, we all know that the RDR will come into effect on January 1 next year, with advisers continuing to take whatever level of fee they fancy. We also know that the less morally robust types will readily “explain” their fees to their hapless victims and get them to “agree” it, paid for, up front and out of the product.
The sweeping assumption that fees are somehow morally better than commission was embraced by the RDR policymakers when the whole sorry saga was dreamt up. And before anyone asks me to stop carping on about the RDR, we have been “agreeing” fees for years but like to think we give our clients the full range of options. Predictably, many still prefer to pay via the cunning, interest-free, often tax-relievable “commission” route - which is still available of course.
So am I to believe that once we go through the New Year, people at the FSA will think to themselves that the “commission ban” box has been ticked so we can all forget about that particular evil? Or are they secretly thinking they got something wrong and it has all been a complete waste of time and money as it actually does nothing effective to address over-charging scoundrels?
The unpalatable truth is that nothing will change other than the word commission will be replaced by the word fee.
And to counter the effect of an almost complete cessation of regular-premium business (the backbone of many an IFA’s business model) most are understandably putting in place business structures that charge up to a whole percentage point in “fees” to sit on and “manage” client portfolios. Then there is the wrap fee, product charge, AMC and TER.
I must admit I am personally holding my breath for another charge somewhere or other. I mean, I had never heard of TERs until a couple of years ago.
And finally, we are starting to see banks ditch their whole of market models by rolling out their new and improved service offerings to the unsuspecting public. Trust me, your average Joe Public has no concept of what independent or restricted means to them, so it makes little difference to their mental well-being if either option is put in front of them – banks will dress it up to sound good either way.
Still, that will give the FCA plenty to get their teeth into when they take over the reins.
Tom Kean is director of Thameside Wealth Management
Have you looked at investment trusts more since RDR?