I have been at a number of events over the past few weeks to discuss how the RDR has affected the industry. Some of those who have sat through any of my speeches over the last few years may have suffered a bit of deja vu. But the reason for the recent burst of activity is that before the end of the year we intend to publish our post-implementation review of how the reforms have worked.
Coming short of two years since the RDR came into being, the review will not have all the answers. However, it will have indicators of where we are in terms of achieving our objectives.
One of those, and one that has significant implications for advisory businesses, is how the sector is becoming more professional.
Some have accused us of being patronising on this point, of failing to understand the relationship between client and adviser. But the crucial point I have been trying to make is that the RDR supported and accelerated an existing shift: a change from an industry of distribution to a profession of advice. For me, that is the vital element to the term “professionalism”.
So, the question is: where are we on professionalism? To answer this, first and foremost, we have to look at the reputation of advisers – collectively and individually – with clients. Has the professional approach actually improved trust? Has it been earned?
The RDR brought in the minimum level four qualifications, which everyone has attained, and we recognise this was a significant achievement for the industry. What is more impressive is the numbers going beyond this. It is encouraging to see that around 4,300 have attained chartered financial planner status and a further 7,500 appear to be working towards it. That is just with the Personal Finance Society/Chartered Insurance Institute; there are, of course, other professional bodies as well.
While it is impressive to see many going above and beyond the levels we set, I should add that we have no plans to increase the current minimum standards.
An improvement in the quality of advice given is something else we are looking for. This is absolutely central to the question of professionalism but is not that easy to measure, especially so early on in the RDR’s life.
But that the RDR has made advice and advisers’ expertise the commodity to be sold rather than the product or proposition is a start, and we would expect to see advice that is personal to the individual client rather than shoehorning into the firm’s products or centralised investment proposition.
Allied to this is the quality of disclosure. In thematic reviews published over the last year, we found disclosure on adviser charges and services falling some way short of what we think professional standards should be. That has to change and the next round of the thematic review will tell us whether people have listened to the messages we are trying to get across.
But it is also about suitability documents. Clients come to advisers for a personal service, to draw on expertise to consider their personal circumstances and help them navigate the complex world of financial services. They are expecting to receive a suitable recommendation, explained in a way they can understand and which will help them to make an informed decision.
What we have found all too often is that suitability reports seem to have been written not to provide an explanation to the client but to defend against possible future complaints. Our view is these can very often be shorter, clearer, better structured and more focused. Advisers do not need to throw the kitchen sink at it. Rather, we would prefer that the needs of the person reading it be considered first and foremost.
The benefits of a more professional industry should be clear to all. For advisers, it should bring even better engagement with consumers, greater demand for an expert service (particularly in light of the pension reforms) and a better working environment, with fewer worries about compliance. That is what we want to see, too.
Rory Percival is technical specialist at the FCA