The Financial Conduct Authority is “unsettled” by early post-RDR research indicating a lack of understanding from clients about advice charges, warns Ernst & Young director Malcolm Kerr.
One of the key aims of the RDR was to improve the transparency of advice charges to ensure consumers have a clearer picture of what they are paying for.
However, Money Marketing understands that early post-RDR consumer research conducted by the FCA has flagged up a lack of awareness among clients about what they are being charged for despite the reforms.
Speaking at the Money Marketing Retirement Planning Summit in Cork, Ireland last week, Kerr said: “In my own personal view the FCA is unsettled that the RDR has not actually worked in the way it hoped it would work.
“I think it thought there was a transition process going on last year and that people were starting to build propositions that they could sell for a fee, and there would be a market for advice and that clients would be in no doubt they were paying for advice.
“The evidence that I have seen, and which I guess the FCA will have seen, suggests that is not actually the case. There are clients that are not fully aware that the money the insurer is paying to the adviser is coming right out of their own pockets.”
Yellowtail Financial Planning managing director Dennis Hall says: “To be frank, clients are more comfortable paying a charge which is a percentage of assets.
“When we have tried getting people to pay fees far fewer are comfortable with it. There is this utopia of fee-only that the regulator wants to get to but consumers just are not ready for that.
“We simply were not able to run a business on a pure fee basis. But I think a lot of advisers could do more to explain to people exactly what they are paying and why.”
An FCA spokesman says: “We are doing a full post-implementation review to establish how investors have responded to the changes.”