In the words of the FSA, the aim of the retail distribution review is “to modernise the industry and establish a resilient, effective market, where consumers can have confidence and trust at a time when they need more help and advice”.
But according to a new report from Aviva, around three million people will struggle to get decent advice once the new rules come into force in 2013 because IFAs will target higher-net-worth individuals after the RDR.
There has long been a concern that the RDR will result in a two-tier advice system, with the majority of people ending up simply being sold products rather than being advised on them.
In its current form, the RDR is likely to see more consumers opt for advice from their local high-street branch rather than an IFA. Given recent actions from the banks, people may not even be sold products – they may have to go it alone.
That appears to be the message from Barclays after it closed down its advice arm earlier this year. Customers will be pointed towards its direct service or an IFA if they insist. Perhaps the bank realised in the face of its £7.7m fine (it rejects any connection) that customers will probably be able to have a better stab at investing themselves.
The FSA is right on one point – we are going to need more help and advice. Younger generations certainly face an uphill struggle. It is not just pension provision that will be a massive issue in years to come, so too will long-term care.
Here again it would seem the banks do not want to help.
It was not so long ago that HSBC decided to enter the LTC market with the acquisition of the Nursing Homes Fees Agency. It had a motive and a plan.
In its statement at the time of the acquisition, it claimed it had identified a need to develop its service offering for LTC. It said: “The acquisition of NHFA, the leading practitioner in the UK market, brings HSBC a new range of services. It also forms part of the bank’s strategy of evolving its range of later-life services to fit with the extraordinary changes over recent years in customer needs and desires identified by our Future of Retirement study.”
However, fast-forward five years and HSBC has changed its mind. Today, it says LTC is very much a niche market and, as such, “no longer forms part of the group’s strategic direction”.
It might be a niche market but LTC is a growing problem that is increasingly being debated in the corridors of Westminster. Living longer has its downside, unfortunately, and care fees are an expensive business.
Maybe HSBC’s decision has been based on its latest Future Retirement Report, which shows we do not care too much for our elderly parents. Its 2011 retirement report says our biggest fear is not caring for elderly relatives but of falling household incomes leaving us worse-off in retirement than our parents.
There is a serious point. The Aviva report shows most people talk to their friends, go on the internet and visit their bank before opting to see an IFA. And this is before RDR has seen the light of day. These are worrying statistics.
The regulator should be trying to encourage consumers to seek out decent financial advice, yet the RDR might scupper this. I just hope it is not shooting itself in the foot and that the three million figure, estimated by Aviva, turns out to be wide of the mark once the new rules are up and running in 2013.
Paul Farrow is personal finance editor of the Telegraph Media Group