Ignorance Is No Defence Post RDR

A patient going into the operating theatre would wish their surgeon to be fully qualified and up-to-date on medical developments. Similarly, clients of money managers would probably want their financial adviser to have the most recent education on the market when investing their life savings.

In fact, the standards are already high, especially since the Retail Distribution Review was brought into force in 2013. Advisers must complete 35 hours of continual professional development (CPD) every year. Of those, structured CPD should be a minimum of 21 hours for at least 30 minutes per credit, and unstructured CPD (reading trade magazines and websites, for example) is a maximum of 14 hours of up to 30 minutes per credit.

Lydia Romero, director of learning at the Chartered Institute for Securities & Investment, spoke to ETF.com about the importance of ongoing education, rising standards since the implementation of RDR and the upcoming European regulation that threatens to re-mould the UK landscape.

ETF.com: Has the RDR improved overall standards of advice?

Romero: I think there is a real appetite now for qualifications. It’s regulated, so advisers need to have the RDR-compliant qualifications, but we are seeing more appetite for CPD as well.

People see the value and confidence it inspires in their clients if they come with a qualification and CPD; advisers are working from a much more knowledgeable base. We have seen a steady increase in the take-up of our RDR-compliant qualifications, whereas you might have expected it to drop off after a few years, but it hasn’t. This is great. It can only be a good thing for the industry and for clients.

ETF.com: Are ETFs covered in your exams?

Romero: We cover ETFs and passive funds in two of our derivative units – only one is relevant for advisers at level 4. We also cover it in our chartered wealth manager qualification and portfolio construction theory unit.

ETF.com: Is there a good balance in education between passive and active funds?

Romero: Yes I think so. We are always mindful of what the industry needs and we update our qualifications in response to what our members’ feedback. We also have panels that review our qualifications. Based on the numbers taking our exams, I’d say we are on the right track.

ETF.com: The Financial Conduct Authority seems to trust advisers that they have retained what they have learnt via exams and CPD, rather than oblige them to prove it. What is your view on this?

Romero: I think you can flood the market with tests and you end up with a test-weary industry. Our members come to our CPD events and they do value them. I can see your point but I think we’d end up with a small number of members coming along. Our professional refreshers have a small multiple choice test at the end of a unit and that’s not official but it does consolidate the learning they might have gained.

If you can put a fun angle on the test, so it doesn’t feel as heavy as an exam, that’s fine. For me, CPD is a voluntary activity and we need them to be enthusiastic about it. If we started testing them, we might end up taking responsibility for them going away and retaining that knowledge from a CPD event. They probably would know what they had just learnt, but whether they retain it a week or a month later, that is unchartered ground, really.

I prefer members to be coming regularly, without testing them, and keeping up that thirst for knowledge.

ETF.com: What is your view about the Markets In Financial Instruments Directive (MiFID) overtaking RDR and creating new qualifications?

Romero: There is a whole range of regulatory legislation coming in over the next few years. MiFID is one part of that. It’s a good thing for Europe and will bring standards up across Europe. We’re already there in the UK, I think.

All of these new directives are recommending the same thing: that we need to improve standards, quality, integrity, ethics and conduct in the industry. I think there’s probably truth in that the FCA will only want to manage one legislation. Eventually – and we feel this strongly – the regulation will be streamlined into one form whereby advisers demonstrate their fitness and propriety to work in the industry. So it will overtake RDR, and all will combine into one, but that’s years down the line.

ETF.com: Is naming and shaming the right way to go? I often see advisers’ failures in the exam hall being advertised.

Romero: That’s a hard one. I can see why, especially given the times we have lived through, there is a culture of naming and shaming. I think it should only be employed in the worst possible situations – there is a danger in lumping together those who have committed major fraud with those who have committed minor transgressions. It really depends on what that person has done. I would say that you should have a name and shame policy but you should be flexible and objective in how you apply it.

ETF.com: In summary, has RDR done enough in its original form to improve the industry?

Romero: I don’t think it could ever do enough. Certainly, it has created a layer of regulated activity which the industry sorely needed. Now, as an industry, we can stand up and say we have acted and the public can be confident that advisers are qualified to advise, and are being educated consistently. That will always go further, as we know what is coming down the track is going to increase the regulation in that area. But I think we’ve done a pretty good job with RDR: it’s been an incredibly helpful and useful took for both advisers and the public.