Introduction Paul McMillan Editor, Money Marketing

2. Introduction Paul McMillan Editor, Money Marketing

3. What does the consultation paper say? Dan Waters Director of Retail Policy, FSA

4. The consumer’s viewpoint Kay Blair FSA Consumer Panel

5. A great leap forward … or more of the same?

6. Tackling confidence/ encouraging engagement • Trust eroding • Credit difficult to obtain for many • Property no longer savings fallback, creating wealth • Savings/capital/retirement pots diminishing • Poor interest rates • Unrelenting media gloom

7. What do consumers want from providers/advisers? • Give the customer what they’ve paid for • Do not take advantage of the customer • Offer them the best product you can • Do your best to resolve mistakes quickly • Show flexibility, empathy and consideration • Exhibit clarity in all customer dealings

8. Results have been disappointing! • FSA continues to find financial promotions which fail to be ‘clear fair and not misleading’ • FSA’s examination of advice on pension switching found that a quarter of firms gave unsuitable advice in over a third of the files reviewed • FSA has found that suitability letters are poor in many cases • In 2007, FSA found that only 15% of KFD documents were effective

9. We confess – we have been worried! • Would the RDR leave the middle market stranded? • Would tied/multi-tied outlets be let off the hook and soak up an even greater market share? • Would labels be disregarded or meaningless and leave consumers exposed and vulnerable? • Would disenchanted consumers resort en masse to the internet and recklessly buy even more inappropriate products? • Would remuneration structures/sales targets continue to distort advice processes?

10. Delivering a Better World

11. Why we are enthused • Making it easier for consumers to understand services • Welcome the widening of product range – • Abolishing commission – freeing from provider, sales and product bias • Separating advice from sales • Increasing professional standards and ethics across the board

12. Retail Distribution Review – like a jigsaw. But all the pieces have to fit Labelling Charging Professionalism Money guidance Guided sales

13. Professionalism • Welcome new standards, application and Board (with consumer representation) • Will help engender consumer confidence • Have to be applied widely • But do standards go far enough? Professionalism

14. Welcome clarity on labelling Advisers need to advise and can sell Sales people need to make recommendations Independent advice is truly independent Independent versus Restricted Advice Independent advice Restricted advice

15. Blowing your own trumpet • What a great marketing/branding opportunity • But you need to make consumers more aware that independent advice has a value and is worth paying for • Hopefully trade associations will play a key role

16. Consumers know what the cost of advice is, how they will play for it and what they can expect Transparency is key – consumers need to know what they are getting Fair Adviser Charging Fair charges

17. Commission bias removed from the system Recommendations are not influenced by product providers Tackling incentives and remuneration Reward

18. Cost of sales too high for middle market Guided sales a real possibility Mitigate risks to acceptable level, ensure ‘right’ kind of product Simpler process, products, good outcomes? Simplified Advice process Guided Sales

19. Why we like guided sales • Need for a low cost advice service • Panel supports development of both guided sales and focused advice • Hopefully market big enough to sustain this, despite all caveats about it e.g. EU legislation, industry scepticism

20. Needs to have ‘teeth’ Real opportunity Where does advice on personal accounts/ DC pensions sit? Interaction with benefits system And don’t overestimate results of financial capability programmes A long term project that’s looking good A welcome addition Money Guidance

21. 2012 – A Better World

22. The provider’s viewpoint Peter Williams Head of Industry Development, AEGON

23. Back to the future …. The provider’s viewpoint CP 09/18 Dr Peter Williams FCII FPFS Head of Industry Development, AEGON UK

24. My agenda • Why the RDR • Channels & labels • Professionalism and qualifications • Remuneration • Adjacent markets • Widening access

25. Background To The RDR ‘we have a system which serves neither the producer of the services nor the consumer of the services. It is doubtful whether it serves the intermediary either.’ Callum McCarthy, FSA. 2006 • Current system fails to build long term relationships. • Present system has built-in incentive to churn. • Current process is detrimental to customers through product and provider bias. • Merry go round of ‘new’ business. • Aim – improve consumer confidence & trust • Aim – increase the numbers of consumers of our products and services

26. RDR Roadmap – a long journey • DP07/1 – June 2007 • Based on work of industry groups • chartered, general, primary advisers; emphasis on reform and access • Interim Report on Feedback – April 2008 • Independent “advice” and non-advised “sales”; clear preference for customer agreed remuneration; move from chartered to diploma-level qualifications • Emphasis on simplicity and clarity • Feedback Statement 08/6 – November 2008 • Emphasis on pragmatism and a demanding timetable

27. CP 09/18 – A success? • On a balance scorecard basis the 165 page CP gets a thumbs up – but with some key areas of concern remaining • We like the certainty of the timetable – it is tough but achievable • We like the definition of independence and the pragmatic approach to platforms & wraps • We like the professionalism proposals – but further details are necessary – not optional • We like Adviser Charging – but the proposed ban on factoring is WORRYING • We need a solution to corporate that doesn’t distort the market • We need FSA guidance on the new Simplified Advice Process • We need to see more done to engage more consumers • Let’s look at the details………

28. Channels, labels & ‘independence’ • Independent advice • Restricted advice • Simplified advice process (was advised guided sales) • Basic advice – the resurrection of the dead ? • Non-advised services • New definition of independence – independent advisers will need to look wider than packaged products to include “retail investment products” (packaged plus unregulated collectives, investment trusts and structure products and new EU thinking on PRIPs). THIS IS GOOD • Platform, WRAPs, DIFs and panels under the spotlight.

29. Professionalism and qualifications • Few surprises – 6th March 2009 Qualification Update confirmed. • QCF Level 4 (this is the same as the 1st year of a bachelor degree) • No grandfathering - • Alternative assessment (WBA) now more an oral examination of technical knowledge (as per QCF L4 written exams) • 2012 timetable is challenging – unless you start now • IPSB – speeding up review to 2010 so that in place by end 2012 • Tougher standards of CPD & new ethical code • Is the longer term aim still QCA Level 6 (Chartered Financial Planner) for new entrants? – we hope so

30. But what is meant by QCF Level 4 qualification? • AEGON had called on the FSA to give 3 reference points – Level, content & size – the FSA responded with a qualification Update on 6th March 2009 • So, we have the level – QCF L 4 – Very Good • We have the ‘outline’ content – regulation & ethics; personal taxation; investment & risk; application of technical knowledge; plus ‘specialism( and the FSSC are now developing the detail syllabus/requirements ) • But we still don’t have the size – as a minimum AEGON has suggested using the national QCF definition for a Diploma – 37 Level 4 credits. • Confusion is likely . The CII’s Diploma is worth 40* QCF Level 4 credits • The ‘ifs school of finance’ has introduced a “Diploma” but even after adding a technical paper (to satisfy the 6th March requirements) , it is only equivalent to approximately 31 credits • The SII has just launched a Level 6 RDR paper (not a full qualification). • Others will follow - The market needs the FSA & FSSC to give us a minimum size. • * 40 QCF credits = 80 CII framework credits

31. Providers are behind the CII & PFS • The current CII Diploma allows you great flexibility - Select the Diploma papers that are relevant to you and your clients needs and then use CPD to gap fill • Providers are behind you, for example Aviva and Scottish Widows are offering academies, at AEGON we have sponsored the development of PFS study group material – study groups can substantially increase your chances of success • Advisers need to make the commitment and recognise that completing the Diploma takes hard work!

32. Remuneration • Adviser charging is seen as a way of tackling bias and boosting public trust – we agree • FSA are aiming for a level playing field between independent & restricted advisers – this is vital • AC will also apply to GPPs where individual member advice given – but it would be better if AC worked at just employer level – we welcome the further consultation (views by 31 July) • We support the FSA code of remuneration practice • BUT we still have significant concerns over banning factoring • Customer detriment in smaller, regular premium cases • more difficult for some firms to transition, risking market capacity

33. Adjacent markets • Corporate – it should be wider than GPP • AEGON believes it offers a vital access route to savings and protection for millions of people • Protection & mortgages • FSA looking at potential distortion if protection is ruled out of – but LESS protection business will be written if AC is adopted and factoring is banned • Mortgages being reviewed in Q3 2009

34. Widening access • For AEGON, this was always the key success factor for the RDR. We believe people need decent products to secure their financial futures, and that they should have a wide range of routes to get the help, guidance and advice they need before buying. • We support Money Guidance (recommended by the Thoresen Review) and are therefore pleased that CP09/18 includes this • We believed that advised guided sales (now called simplified advice process – SAP) could play a part and are pleased that the FSA are willing to consider guidance – this is vital. However QCF L4 seems high • Increased professionalism and more trusted ways of paying advisers will encourage recruitment, but we need more work on bringing new blood to the sector. Our work with the Yorkshire IFA Forum and Bradford University School of Management, is one approach • As it is, we fear the lack of clarity on SAPs and the difficult transition on exams and remuneration could shrink capacity, with the mass market bearing the brunt.

35. What should PFS members be doing • Firms (and individuals) should work out exactly what qualifications their people hold and what they need to do to meet the RDR. • For advisers who will still be in the business in 15 years – your target is Chartered not Diploma • Build a marketing strategy based on how you want to operate in the post 2012 world. • Review your wrap and platform propositions, and any distributor funds, to make sure independent status isn’t challenged.

36. Summary • CP09/18 has the potential to be positive for the industry, profession and most importantly – the consumer • However the FSA now needs to listen to the industry as this is the first formal opportunity post the November Feedback Statement. Issues raised today – including Factoring, Corporate business, Protection and qualifications – all need resolving.

37. This information is based on AEGON UK’s initial assessment of the proposals outlined in CP09/18. • Scottish Equitable plc is authorised and regulated by the Financial Services Authority

38. The IFA’s viewpoint Chris Cummings Director General, AIFA

39. “Yes, but no, but maybe, anyway shutup!” Vicky Pollard The “Bob Dylan” of our age

40. Agenda The road ahead • The public policy agenda • Why would you start from here? • Politics • Religion • Money • Regulation • But does it work? • The good news

41. A nation Under-saved Under-protected Under-pensioned But Over-indebted Fare-well state! Regulation Cost Retrospection Risk Too few…for the few Industry? Issues “Complification” Reputation Consumers? Alienated consumers 10M people affected Supply & demand Means testing Why do we need RDR? Public policy realities

42. Why do we need RDR? Why doesn’t the FS market work? • Mistrust • The industry • The regulator • Government policy • St Augustine of Hippo • Hasn’t it worked rather (too) well? • Democratisation of credit • Focus on distribution • “da mihi castitatem et continentiam, sed noli modo”

43. Why do we need RDR? Why doesn’t the FS market work? • Is COB regulation is the wrong hammer? • Time to change architecture? • Counter-cyclical regulatory structures? • “da mihi castitatem et continentiam, sed noli modo”

44. Why do we need RDR? What was the RDR supposed to do? • 6 RDR outcomes: • Consumer clarity on products and services • More consumers to have needs and wants addressed • Standards of professionalism that inspire confidence • Remuneration that works in favour of consumers • Viable industry over long term • Regulatory framework that doesn’t stifle innovation “The budget should be balanced, the Treasury should be refilled, public debt should be reduced” Cicero

45. Why do we need RDR? Wouldn’t start from here… • FSA research • “Financial Capability: A Behavioural Economics Perspective” (CR 69) • Procrastination • Hyperbolic discounting • Postpone a cost, even one that generates high future benefits • Regret / loss aversion • Base future on what could had in past “Good resolutions are useless attempts to interfere with scientific law… The result is absolutely nil.” Oscar Wilde

46. Why do we need RDR? • Mental accounting • Artificial budgets • Savings and borrowing • Status quo bias • Stick with current choices • Curse of knowledge • Inappropriate / unimportant data “Good resolutions are useless attempts to interfere with scientific law… The result is absolutely nil.” Oscar Wilde

47. The RDIP in Focus Four types of advice • Independent • WofM – broader definition • Retail Investment products • Specialist areas remain • Panels, broker OEICs remain • Thematic review of platforms… • Adviser Charging • QCA Level 4 “Philosophical treatise on football.” Jean Paul Sartre

48. The RDIP in Focus Four types of advice • Restricted • Not WofM • Adviser Charging • QCA level 4 • Written & Oral Disclosure • Simplified • ….. But simple to do! • Basic • Not Adviser Charging or QCA Level 4 “Philosophical treatise on football.” Jean Paul Sartre

49. The RDIP in Focus Adviser Charging • Applies to • Independent • Restricted • Simplified • Process • Charging structure to be presented – Menu?! • Not vary “inappropriately” between providers / products • “No” to commission rebating • Adviser factoring allowed • Variable retainers allowed (increase / decrease over time) • Payment • Advice cost • Product cost • On going services cost… or Statute of Limitations?! • Except for regular premium business • No retrospective ban on trail!! “When it comes to money, everybody is of the same religion” Voltaire

50. The RDIP in Focus Provider Issues on Charging • Providers • Proposed ban on provider factoring • Yes to different “factory gates” • Must offer flexible charges • Advisers & consumers must have choices • Validate and monitor Adviser Charging • Consumer instructions • Banned from marketing that breaks “decency limits” • No to commission rebating; 100%+ allocation rates • Providers needn’t offer Adviser Charging deduction • “Vertically integrated” firms must allocate expenses fairly • Inducement rules strengthened • Incentives must explicitly enhance service • Training etc to be “widely available” • Firms cannot accept “mission critical” IT etc