It is perhaps because the industry is so important that we have been talking about ways it could be improved for so long, and that so much well intentioned debate has been generated.
Ladies and gentlemen, it’s a great pleasure and privilege to join everyone this evening.
A pleasure because I am a great believer in the importance of APFA and the advisor community and a privilege because, as I’ve discovered to my cost over the last year and half or so, when you become a regulator, good dinner party invitations are rather few and far between.
The relationship between the FCA and the advisory industry is a vital one, and has arguably never been more important than now to get right.
For consumers to access wisely such a competitive market it is essential that there are experts available to help them navigate the array of complex decisions that face them.
When I first arrived at the FCA, I made it my business to find out how the organisation was viewed not only by the largest firms, but also by the smaller ones, which include many, many advisory practices.
The most mentioned messages I got back from the advisory community around the country were threefold.
We want to do the right thing, we certainly don't want to get into trouble with you or the FOS, but your rules are complicated.
We want to have access to you when we need to understand something, particularly new rules.
And, the commonly understood meaning of the words 'advice' vs 'guidance' and 'restricted' vs 'independence' has been severely stressed.
I have appreciated the first, worked at the second, and have to acknowledge the third is an issue we have sought to address.
The message I did not get was a rejection of RDR overall.
Having said that I also rather vividly recall my first meeting with a senior politician who rather forcefully suggested to me that the whole thing should be delayed by a year for fear of the industry being unable to cope, and that we risked some kind of market failure.
Eighteen months on, and you all look remarkably alive and well.
And as it has turned out, the reforms to the at-retirement market that will come into play next year will only increase the need and value of quality financial advice from you.
Out of potential adversity comes opportunity. So, we both share the common and urgent aim of helping consumers to achieve their financial goals and to plan for their long term futures.
For many people, the best way to do this will be through the assistance of an advisor.
It is perhaps because the industry is so important that we have been talking about ways it could be improved for so long, and that so much well intentioned (and for the most part good natured) debate has been generated.
It is now over eight years since my predecessors (officially) began talking about the need for a collective shift away from product and provider bias, toward an appropriately regulated distribution system.
We as your regulator must be big enough to admit that we may not always get it completely right, and that when we don’t, we make sure we listen to common sense.
In the past five years we have seen significant change - in the main for the better – from an industry where there was reliance by many advisory firms on product providers for remuneration by commission, for training and for other support, to one that is more resilient, and more transparent with its customers in terms of price and services.
In many respects the early days of change were all about distribution, hence the name, Retail Distribution Review, however alongside these changes we have seen an equally significant shift toward an industry with increased standards of professionalism.
This is important, because the old FSA always saw the RDR as creating the framework for the industry to turn itself into a profession.
We are seeing this transformation happening in practice, and we want to support and encourage this transformation.
And for us, when we talk about professionalism, we mean something more than just professional qualifications and certificates.
Rather we mean a state of mind that dictates how you conduct yourself and how you conduct your firm when dealing with customers.
We have all learnt somewhat painfully from the banking sector that tone at the top is no substitute for tone at the till in the eyes of the public.
I am sure the same is true for financial advisors.
The questions we therefore ask ourselves in conducting our work are:
- What is the firm’s business model?
- What is the culture of the firm?
- How does it run its business?
- And does it keep the client at the heart of its business, in practice as well as in theory?
This is our focus and this is very different from what you may have seen in the past. It is a focus that permeates the whole of the firm, from advisers through to office managers, compliance and senior management.
Less on what compliance boxes the firm ticks, more on whether it is putting professionalism into practice at the interface with the client.
And we see it as very much our role to facilitate this transition from industry to profession.
The message from me is that we very much want you to succeed in this journey.
Indeed, we can only fully meet our objective if you do.
So just like firms we must be open and transparent.
In this spirit of openness, we recently published the outcomes of our work on the perceived ‘expectations gap’ between regulators and industry[2].
This work considered how any differences in understanding between regulators and industry might affect the quality of products and services that consumers receive, or inhibit consumer-friendly innovation.
We have asked the industry whether market development was being held back by uncertainty around our rules, or concerns over retrospection.
We have launched Project Innovate[3], and we are consulting on guidance on what is, and what is not, a personal recommendation.
We have carried out two 'cycles' of thematic work looking at how firms are adapting to the post-RDR rules. A third cycle is currently under way.
So is our post-implementation review which I look forward with some combination of nervousness and optimism.
After all RDR has not been cost free. It will be important to make as thorough an assessment as we can of whether the exercise has been worthwhile at this stage of its journey.
We as your regulator must be big enough to admit that we may not always get it completely right, and that when we don’t, we make sure we listen to common sense.
In this vein and in response to industry feedback, we have recently clarified our rules on independent financial advisers using internal specialists, and have made our data reporting less burdensome.
Equally, there remains much talk of the number of people who do not have access, for one reason or another, to advice.
The reasons for this are well rehearsed, if not universally agreed.
We are very sensitive to this point, not least because our objective is to make markets work well, not just to stop them working badly, which can be achieved by preventing them from working at all!
We are particularly interested in the use of technology to lower the cost of appropriate advice or guidance to those whose assets are insufficient to meet economically current typical charges.
The FCA was born just after the RDR came into effect and I would be understating the case if I were to say that the RDR did not receive universal support among advisers, when first discussed.
Given the scale of these reforms, it is hardly surprising that they elicited what I will generously describe as a 'mixed response'.
However, it is difficult to disagree with the reforms’ broad aims.
Indeed, over the coming years MiFID II will help embed the principles of transparency, bias-free investment advice and professionalism, which were central to our RDR reforms, across Europe.
While we have come a long way, we still have a way to go yet. While we will not always agree on everything, I can assure you that we will always listen and that our door is always open.
It is through discussions with bodies like APFA that allow us to hear from the industry and to sense check our thinking.