Nic Cicutti: Dear John, why you should stay post-RDR
Last week, I received an email from an IFA - let’s call him John - whom I have known for almost 20 years and respect hugely. John is highly regarded by a many of my colleagues, who regularly contact him for his views on stories they are writing. I too have often quoted him when writing newspaper and magazine articles.
John’s decision to email me followed my recent Money Marketing column, in which I suggested that the majority of IFAs appeared to be accepting the new RDR requirements and studying hard for the qualifications they will need after December 2012 - always assuming they want to remain in the industry.
As it turns out, last week also saw a new story in MM, based on a survey by Aifa to the effect that 1,400 advisers have yet to start their quest for appropriate post-RDR qualifications, despite wanting to keep practising.
For my friend John, however, the issue is an academic one (if you’ll pardon the pun). He has had enough. I am sure he won’t mind me quoting him at length because in many ways his views reflect a sizeable proportion of advisers today.
His email, slightly edited, said: “Glad to see you are still upsetting people. Still here, but not for much longer. Passed my 65th birthday in February. Still have the passion and knowledge. I have been an IFA since March 1973 and survived all sorts of attempts by the big boys - banks, building societies, insurance companies - to get rid of independents.
“From December this year, I will not be able to give advice any more because at my age I do not see why I have to sit exams again. This obsession with exams isn’t the right way to go. If exams were the answer, actuaries would still be running mutuals in good shape and final- salary schemes wouldn’t be in the mess they are in today.
“I’m in favour of cleaning up the industry, of course. We run a business employing 40 people, winning awards for excellence and investment expertise, have thousands of clients throughout the UK (86 per cent come by referral from existing clients).
“We manage £700m, don’t charge for switches, don’t charge apart from sharing the normal AMCs of managers, give relationship-based tax and planning advice within that cost and all costs are transparent to all clients. And 94 per cent elect not to pay a fee - I guess even the rich don’t like to pay VAT.
“If the FSA has the RDR right, it will be the first success by academics and bankers. Nonsense from regulators who haven’t a scoobie when it comes to delivering integrity-based advice.”
This is what I wrote back to John: “It’s great to hear from you. I’m amazed to hear you hit 65 a couple of months back as you have always struck me as having the energy of a 35-year-old.
“Given your age - you’ll be almost 66 by the time the RDR comes into effect, I can understand why you feel you don’t want to study for more exams, although I do wonder how much real study would have been involved, given your existing qualification levels and the opportunities available for people to take case-study-based exams with a 50 per cent pass rate, which I’m sure you’d walk.
“Also, your comment about actuaries and mutuals is not entirely fair. The abandon-ment of mutuality was - as we know - part of a wider set of corporate changes, many of them regrettable, that came into effect from the 1990s onwards. Qualifications had nothing to do with it.
“As for the demise of final- salary pensions being trigg-ered by overqualified actu-aries, I take that as a tongue- in-cheek remark.
“What actually happened was a combination of pension contribution holidays by employers, not to mention their use of schemes for industrial restructuring purposes, plus tax raids on pension schemes by New Labour. Yes, actuaries’ estim-ates of future investment performance were often over-generous, but whose weren’t back in the heady 1980s and early 1990s?
“Either way, I certainly respect your decision to quit giving direct advice, though it will be a sad day when you do stop. That said, I’m also left wondering about what happens next at your firm.
“Your email leaves open two possibilities - either you do what many other IFAs your age have done over the years and sell the business, including both the client bank and funds under management and enjoy a well earned retirement.
“Or you continue running the business itself but without giving advice to your personal clients, although I’m sure you would be able to ’oversee’ the advice given to them by your colleagues. In other words, the firm itself retains your hands-on involvement and your clients will be aware of that even though you are not advising them directly.
“Indeed, the chances are that you were probably already ’subbing’ out specialised aspects of your clients’ overall advice proposition to other members of the firm’s 40-strong team - tax specialists, paraplanners, invest-ment analysts, pension specialists and so on. In that respect, relatively little needs to change compared with what you do now.
“I hope you will stick with the industry you have served with such distinction for over 40 years. It would be much poorer for your absence.”
Nic Cicutti can be contacted at nic@inspiredmoney.co.uk
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Readers' comments (28)
"enjoy a well earned retirement"
Not if he is unincorporated.
Without a longstop, he's stuffed. He'll not even be able to sleep at night when he reaches 81, knowing that some chancer isn't going to try and chase him for money while he's in his nursing home. THAT is why the longstop should apply to everyone.
Provided his clients are told he is leaving and to seek fresh advice in the next 15 years, then the new adviser shoudl identify any problems within the longstop period and would be professionally negligent him/herself if they failed to advise action and the new adviser would be responsible for their own negligence for up to 15 years. If the former client failed to take advice in those 15 years, why should they be able to pursue an 81 year old for their own negligence?
There is NO reasonabl;e argument for the withdrawel of the lonsgtop if you look at teh fact the consumer has to take some responsibility for their own innactions.
The consumer should have no more, nor no less rights to take action against an adviser, than against a solciitor, accountant, architect, building survey.
Take teh architect whose buildings should hopefully stand up LONGER than any investment of money, but that does mean they need regular review and maintenance (just like investments as fire regs change, so do tax regs), otherwise they may fall down and it is not the architect's fault.
I agree with John. There comes a time when you have quite simply had enough.
The RDR is already shaping up to be a disaster of mammoth proportions but you ain't seen nothing yet. Come Jan 2013 I predict that we will have 3-6 months without a functioning advice industry.
The RDR simply cannot work. If there were any demand for the business model it imposes it would already exist and the FSA wouldn't have to impose it.
John is right. If the RDR works "it will be the first success by academics and bankers"
It's just a shame they are allowed to test their theories without consequence on our livelihoods.
Why would his retirement be stuffed? One presumes his company has Limited Incorporation. One therefore assumes he will sell the shares/business or wind it up, and enjoy his retirement.
I honestly cannot see in this day and age why an IFA would be unincorporated. Yes, the longstop (of lack of) is unfair, but it's very simple to avoid the problem.
And for those still acting in partnership or sole trader - my suggestion is they urgently consider Incorporation and stop the "tail" of business history getting any longer. Your accountants will be able to assist the process.
Why wouldn't you?
IFA @ 10:11 is right. It's pointless to complaint about the lack of a long stop when you can easily sort it out by becoming a limited company. And that's before you consider the massive tax planning opportunities there are in being able to choose when and how much to pay yourself.
...anyway, back to the subject - this article isn't about the irrelevant long-stop.
RDR is a folly that will destroy the businesses of many good IFA's like John, remove valuable experience from the advice industry and remove choice from consumers.
Anyone who wants to stay in financial advice post 12/2012 should be sectioned. There's no money to be made but worst of all, no pleasure in the job anymore. They've made us all civil servants.
To Tricia Yates @10.30 & IFA @ 10.11. I am sorry to tell you that you are both totally wrong in your assumptions. Being a limted company does not mean a thing in our business from an advice point of view regarding any long stop. The adviser, regardless or being a ltd co or LLP has PERSONAL LIABILITY for the advice given to every client. The only protection your company has is via Company law and guess what? - That doesnt include advice a director gives a client. Trust me I know this to be the case!!!!!! I do hope he enjoys his retirement along with a lot of other IFA's who will be leaving the business.
I totally agree with John, and will be doing the same, excpet, as Nic suggests, continue to run and market the company.
Nic, interesting point raised here. Are you endorsing that it is appropriate for an unauthorised individual to "oversee" the advice of an authorised colleague? Not sure the FSA would be too comfortable with that!
Nic have you sat these exams? experience plays a very small part in passing them, more a memory test than what actually goes on between client and adviser.
Anecdote:
I have 3 sole-trader locums/IFA existing relationships to protect my business/clients if I'm under a bus.
IFA 1 is retiring in Dec. as decided too old and too expensive for the qualifications he still needs.
IFA 2 is 99% sure he is altering to just do mortgages/insurance going forward.
IFA3 is my only remaining 'locum' for my whole business.
Hope he doesn't find the same bus that I might?