top of page

The Treasury is killing off the RDR

So Godfrey Bloom was right. When I interviewed the former Ukip financial services spokesman and MEP in 2013, he called for the RDR to be scrapped.

Despite years of consultations and industry overhaul, Bloom said his party would push for a return to commission and a reduction in qualification levels.

While he gained support from some advisers, many thought he was ridiculous. The rules had been put in place, many IFAs had gone through tortuous examination processes and it was done and dusted, they said.

Sure, regulators need to look at ways to widen access to advice but reversing the RDR? No chance.

Well, no one is laughing now. Speaking on BBC Money Box last week, acting FCA chief executive Tracey McDermott said she was thinking about bringing back commission payments. Other reports suggest adviser qualification levels could be lowered too in some circumstances.

That would represent very large reversal of the RDR aims to end commission payments and end perceived bias in product choices by advisers for their clients.

It would also end the idea that advisers have the same qualifications as McDonalds staff, in former Treasury financial secretary Mark Hoban’s infamous words.

Whatever Financial Advice Market Review (FAMR) decides it is now obvious that the RDR is dead. And it is not the FCA who has killed it but the Treasury. Today’s FCA is a mere pawn of George Osborne’s department.

This is the same FCA that rejected a Treasury select committee recommendation in 2011 to merely delay the RDR by a year. It did it in just a few hours to ensure no momentum was lost in reforms. It was also active in cracking down on post-RDR inducements and pay-to-play deals.

But look at it now.

Santander, who had to suspend 700 advisers in 2012 and scrap investment advice because they did not comply with the RDR, are now emboldened enough to re-enter the market with 200-plus advisers.

So why is this happening?

The FAMR is part of a clear trend to shape regulation to help banks. Last June, Osborne promised a “new settlement” with banks and in the last nine months he has given them everything they could possibly want.

He has watered down the new senior managers’ regime for bank executives, lowered the bank levy for the biggest banks and made it easier to circumvent the retail ring-fencing rules.

And that’s just legislation. Despite the denials, it is crystal clear that political pressure and a change in the environment has driven the FCA to drop its inquiry into banking culture.

The Treasury is worried about major banks – specifically HSBC and Standard Chartered – leaving the UK and taking their billions in tax revenue with them. It is also worried about the hidden impact of excessive regulation deterring foreign investment in the UK financial services industry.

This clear shift in macro political priorities permeates through the Treasury and into the FCA on every issue.

When the FCA was set up in 2012, then-chief executive Martin Wheatley began a flurry of new rules to protect consumers in areas as varied as payday loans to financial advice. That was 2012’s political priority.

Today’s regulators – under political pressure from their Treasury masters – ask what they can do to ease the burden on banks. Priorities have shifted. The pendulum has swung back.

It is affecting everything in smaller ways. For example, the UK has reversed its position unbundling payment for investment research from dealing commission under Mifid II. It has moved from being a strong supporter of separation to fervent opposition because of structural changes and costs for UK investment banks.

There are plenty of other examples of small changes following a different tone at the top.

This movement has clearly been aided by putting bank-friendly personnel in the Treasury such as economic secretary Harriett Baldwin, formerly of JP Morgan.

Baldwin, as previously described on AdviserLounge, is a key ally of advisers as well as being a bank insider.

Her appointment alongside Ros Altmann as pensions minister and Osborne unshackled from his Liberal Democrat chains is another force driving changes to bank and advice rules.

And, of course, the departure of tough-talking Wheatley is part of this push to be much more friendly towards financial services.

Wheatley’s successor will have the Sword of Damocles hanging over them, knowing if they upset Osborne then they could be sacked on a political whim. This is a recipe for the FCA becoming even more of a Treasury pawn with a government patsy at the helm.

This is the political noise shaping a likely end to the RDR as we know it. Adviser commission is on the way back and perceived bias is returning.

It is designed to help banks bring advice back to the market. After the slow death of bank advisers in recent years we are seeing them rise from the dead.

The political tides have turned. It is the RDR today but who knows what other goodies will be thrown at banks in coming years.

All eyes now turn to the next FCA chief executive and his or her imminent appointment. I hear Godfrey Bloom is available.

bottom of page