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FSA tells consumers advice under RDR won’t cost more

The FSA has told consumers receiving advice post RDR will not cost them any more, and argued those with a small amount to invest will not be prevented from accessing financial advice.

A page within the consumer section of the FSA website, updated last week, provides information about how financial advice will change under the RDR.

Titled ‘changes to the way you receive advice about investments’ the web page talks consumers through the concept of adviser charging, where cost of advice is agreed upfront, as well as the increase in professional standards.

In response to a sub-heading ‘does this mean receiving advice will cost me more’ the FSA argues that investment advice has never been free.

The FSA web page says: “The price you currently pay for advice is often hidden within the charges of the product that you buy, and that price is currently set by the product provider, not you – the customer.

“These changes are not altering how much the advice should cost, but rather enabling you to agree how much the adviser gets paid rather than that decision being taken for you by a product provider.”

It adds: “The new charging system will not stop investors with modest means being able to afford financial advice. If you prefer, you will still be able to get advice without having to write a cheque.

“For example, you could instead agree with the adviser to have their fee taken from your investments; the difference in future is that you will agree with your adviser, in advance, how much you will pay for their advice.”

The FSA concludes by saying that consumers should be asking their adviser how much they are charging for advice, and states again that advice is not currently free.


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There are 38 comments at the moment, we would love to hear your opinion too.

  1. For some this may be true. But how about the millions who will lsoe access to advcie because it is too expensive to service their relatively modest needs?

    What about the thousands of advisers who will depart because they are sick or regulatory interference and idiocy?

    What of the providers who will not be able to function without volume and will close or merge with stronger providers?

    If I was intent on decimating an industry and getting away with it (in the name of enfranchsing the consumer) I would have invented the RDR.

  2. Who are the FSA trying to kid.Every one in the industry knows that the consumer will pay more. Where does the FSA expect the extra costs involved with RDR to come from not their bonuses or redundancy paymentsthats for sure. Like always the FSA has no working knowledge of this industry. Just idiots trying to justify every thing they do

  3. what planet are these cretins on?
    I had an enquiry form somebody wh had been told by the employer who was making him redundant that he needed to take independent advice about his group PP and a small residual pension elsewhere.
    There is no way he can afford a fee, and I and the other advisers are not prepared to work for nothing. In the good old days, before we carried all the parasites at Canary Wharf in their ivory tower we would have sorted it out in half an hour, almost certainly earned nothing, but now we have to spend so long filling out the bludy compliance forms etc., he can’t get the advice he needs.
    It’s a shame the cretins don’t read these blogs.

  4. One thing for sure – you do not consult a regulator for a successful business model. The regulator has decided commissions will be banned. Without a shadow of doubt this single move will eventually, and quite soon, destroy independent financial advice for the majority of people in this country.

  5. Is it any wonder that today’s kids are leaving school unable to spell? How do you spell FSA? Answer = J.O.K.E.
    (Admittedly the same could be applied to FIFA)

  6. Michael Fallas 3rd June 2011 at 10:40 am

    Well I hope the FSA is prepared to back up those words and pay compensation if that is not the case out of their own pockets like the rest of us !

    Oh I forgot they are protected under FSMA 2000 from any wrong doing so they can say what they like as they accept no responsibility or accountability.

    With fewer advisors post RDR and FSA,.FOS and FSCS cost rising all the time I really fail to see how the cost of providing advice will not increase even more in 2013. Someone has got to pay the regulators to keep them in the lifestyle then have become accustomed to.

  7. John Blackmore 3rd June 2011 at 10:44 am

    Today I can invest in an ISA and pay say 1.5% pa for a fund, 0.5% of which pays the IFA.

    Post RDR I will still pay 1.5% pa plus any fee unless the FSA force fund managers to have new share classes, allow rebates or restrict the adviser to 0.5% pa

    Given cost increases created by the FSA many advisers will simply take 0.75%, 1%, 1.5% pa or more.

    Costs are almost guaranteed to increase. The FSA cure has become worse than the disease.

  8. I really would like to support the comments coming from our regulator, but hell may have to freeze over first.

    The regulator will probably try and drive consumers to the £40 million FSA white elephant website that doesn’t offer advice… and say this free service saves £400 million in commission payments, all for the benefit of the consumers…

    They really are scraping the bottom of the barrel for some positive spin.

    Lee Birkett

  9. Just goes to show that the FSA dosn’t have a clue. When are they going to stop this stupidity of kidding themselves that they understand the consumer and what an IFA does for them!
    I for one would be very happy to have a public open debate with Sants and the people who think up this rubbish. RDR stands for, in a nutshell.

    Redistribution (to the banks)
    Destruction (of a model that isn’t broken and increased costs to the Industry and consumer)
    Redundancy (of the older IFA’s who have given decades of service to generations of clients and thier families.

  10. I do wonder who writes the updates at the FSA and the circles they work in. Quite clearly there is going to be a restriction in access to advice. Its just that the FSA have not factored that in to their calculations so therefore in their eyes it does not exist.

    I am Pro RDR on many levels but even I can see businesses changing their approach to clients and their profitablity in order to survive. That equals less access to advice for the average person and ultimately less competiton in the sector. Not a very good or wise policy I feel.

  11. As usual the FSA put into print proof that they have no idea what the effect of their meddling is.
    It is arrogance sickening!
    Where will this end?

  12. From the FSA’s perspective the cost of advise will not increase…
    Bearing in mind the forms of advice (Money Advice Service, Comparison Websites etc.) that will be the only sources of “advice” available to the vast majority of people post RDR.

    In the real world, proper advice will cost more, not because IFAs will suddenly have to agreed costs with clients (in my experience only banks have hidden costs which are paid thorugh the product) but because of all of the business costs that will be incurred.

    My advice to those non-HNW indivduals who are thinking of chucking it all in-be patient. The rules will be tinkered with again a couple of years down the line and then I believe there will be an opportunity to make a decent living from advice.

  13. At first reading my blood pressure rose but then I quickly realised that only a minute percentage of the population have even heard of the FSA, let alone actually read their website. Of those that have heard of them 50% think they are the Food Standards Agency and those who really know who they are have opinions of them that can’t be repeated here – and the friends / clients who have expressed their opinions have no FS background or axe to grind. They just think they are merchant bankers, plain and simples…
    But yes, they appear to be completely cretinous, they themselves have quoted £1.7bn? plus £x per annum – does that just come out of a whole in the ground? – I guess that is the way your mind works when you spend your life with your snout in the trough of the final salary, unaccountable, gravy train.

  14. It is extremely worrying that the FSA does not understand basic economics. Even they acknowledge there will be an exodus from the industry as a result of RDR (the only debate being the size of the exodus). Basic economics says that if supply decreases and demand stays the same then prices will rise.

    Of course the smaller investor will still be able to get cash ISA’s from banks and building societies absolutely free of charge!!!!!!!

  15. I’ve just shown this article to a client and his first remark on how to pay for my services through a prodcut charge, after we have agreed the cost of my services was – It’s still commission and I prefer the old way.

    Oh and his occupation – he works for the FSA!!

  16. If I communicated to the same standards as the FSA, they would have me out of business in no time.
    What they say, if the above article quotes correctly, is patently not true. The product provider does not determine the price paid by the consumer for advice – commissions were always rebatable in part or in full either by way of reduced payments to the adviser or by actual cash rebates from adviser to consumer.

  17. Unbelievable!

    Would they allow an IFA practice to post such miss-leading information on their web sites???

    MMMmmmmmm ……….. I think not!

  18. fergus macpherson 3rd June 2011 at 11:26 am

    I think it is absolutely shocking that my local shopkeeper is selliing a Mars bar for 60p. I have NO IDEA what profit he is making on the sale of that Mars bar. I’m going to haggle with him over the counter until he discloses the breakdown of the cost, and then I shall agree with him how much I am prepared to him for it. Brilliant idea. I might get the FSA on to this one…………

  19. The ‘cretins’ do read these blogs, that’s the problem.

  20. I have just come across a client who was advised to invest her teachers pension tax free cash into the bank’s own bond fund (new fund, no track record) in the Strategic Bond asset class… The usual thing, lump sum deposited, cashier alerts investment sales agent, customer called in. When I questioned her about the investment she had no idea what it was. Post RDR this is the future of financial advice…

  21. Exasperated me 3rd June 2011 at 11:56 am

    I am exasperated…

    Collective Intellectual Failure, not once, not twice but each and every day.

    And they get paid for this!

    And they get a bonus…

    And a Christmas party….

    Someone said it was a joke, well the joke is on society.

  22. This may come as a bit of a shock to the FSA, who appear to have somewhat limited understanding of commercial and business economics, but, if the in-put costs of any business are increased, then either the output costs to the customer have to be increased, or, sooner or later, the business ceases to be solvent and closes. The failure to understand such a basic economic fact by a “Financial Regulator” is another reason, sadly, that the UK financial advice sector could simply cease to exist for most non-wealthy individuals.

  23. So the FSA is telling consumers: RDR won’t make advice more expensive?

    Is this because the FSA feels it is not only above the law but it is above the truth. Just look at the facts:

    Oxera, the market research firm employed by the FSA to assess the costs and benefits of the changes, expects the net present value of the compliance costs to the industry to reach between £1.4 billion and £1.7 billion. The FSA’s own cost benefit analysis you will see that they now estimate the 10 year cost as £3.55bn!

    AVIVA predicts by 2013 IFA numbers will fall to 10,000. The economics of supply and demand is bound to force up consumer costs as independent adivser fall in number and increase in qualification level.

    David Hazelton of Tax Incentivised Savings Association(TISA) 30/10/09: The RDR could be detrimental to consumers both in terms of higher product charges and an increase in the cost of advice, warns the Tax Incentivised Savings Association(TISA). Implementation costs for the RDR are being “seriously underestimated” and product charges will consequently have to be raised.

    On 02/12/10 Julie Patterson IMA director of authorised funds and tax says: IMA says RDR won’t cut charges. The Investment Management Association says it is “naive” to assume the FSA’s retail distribution review will drive down overall charges.

    On 27/01/11 Ernst & Young has compiled a paper on the impact of the RDR. It says banks would have to charge £200 an hour for advice just to recover their costs. Director of financial services (insurance) Malcolm Kerr says: “I am not convinced that the IFA brand is sufficiently well known among consumers to justify the additional risk and cost of the independent route.”
    24/03/11 Friends Provident: Announced that the retail distribution review (RDR) has meant it is no longer viable to market or develop new investment products.

    31/05/11 Paul Kennedy head of trusts and tax planning at Fidelity International said: There is a risk that investors will end up paying more tax on their investments which, coupled with the monster that is VAT, would leave them out of pocket.

  24. What a load of tosh, it just proves that the FSA employ a lot of people on high wages who have no idea of basic economics of income and expenditure which was taught to me at a technical college some 50 years ago. It just proves the FSA have no idea and could not give a monkeys about the survival of the financial services industry.

  25. And at the same time the FSA is telling consumers this pap we have Danby Bloch Taxbriefs saying cost of advice will increase as IFAs move to adviser-charging models.

    He said: “The cost of advice will go up quite a lot in net terms. Fees will be received in exchange for advice and the client will pay them out of net income. If you combine the 20 per cent VAT that may be payable on advice, plus payment out of net income, then you have got a substantial increase.”

  26. It never ceases to amaze me what the FSA come out with! As Simon Mansell has stated there are so many professional opinions that state the opposite to what the FSA are saying and I know which view I and many other IFAS will believe.

  27. Does the FSA have any data on how many people (members of the general public rather than IFAs) visit their website ?

    I have yet to meet a client who says “I was on the FSA website recently and they think…….”

    A multi-million pound white elephant !

  28. More Pinocchio speak from our “honourable friends”!!! at the FSA.

  29. Will a person wanting to pay £50 per month into an equity ISA be willing to pay a fee , with an hourly rate of £150 . I dont think so . The FSA have it so wrong

  30. I completely agree with the regulator. Why on earth would it cost more to do the same job that you have always done, just because the client has to agree it first. If anything costs will come down as an adviser now has to justify a fee instead of claiming it is ‘free’. Get in the real world and stop making excuses.

  31. And isn’t the cost of the RDR PR campaign going to be paid for by us?…via some sort of levy. I have a strong feeling the ‘awareness campaign’ is going to have a flavour of ‘you’ve been overcharged in the past by commission grabbing b******s’ and the FSA has come to the rescue with the RDR. 2012 is looking like a high blood pressure year.

  32. And another thing …….
    “If you prefer, you will still be able to get advice without having to write a cheque” – er, does this mean that clients will have to pay ‘over the internet’ instead? And I was under the impression that cheques will have died out by 2018(?), but I suppose the FSA are on reasonably storng grounds here, as there won’t be any IFAs remaining by then – silly me!

  33. Hans Christian Andersen 3rd June 2011 at 9:23 pm

    “The FSA’s New Clothes” is a short tale by Hans Christian Andersen about regulators who promise consumers a new retail Distribution Review where the benefits are invisible to those unfit for their positions, stupid, or incompetent – everyone other than regulators. When the regulators parades before the regulated with their new system, a cry is heard, “But RDR isn’t saving anything at all!”


  34. It is one thing to make statements but the reality is something else.

    I have just had an e-mail from Tax Briefs saying that the cost of advive is increasing

    The cost of everything is going up, maybe the FSA have control over more than we know.

    Anyway the wind blows to divert the attention, as with many of the institutions of power this seems to be the order of the day.

    Someone called it spin, I was brought up to tell the truth and …………… There is no doubt that the idealism of institutions is a dangerous thing, the ones doing the damage will go so far then retire on a fat pension leaving the real World to pick up the pieces and get on with it.

  35. UUUummmmm!!!!

    Is this the same FSA that said PI will not increase due to the FOS limit increase ?

    Morons !!

    The only statistic they have got right is the amount of IFA’s going to leave the industry or should I say be hounded out of employment.

  36. Julian Stevens 6th June 2011 at 9:42 am

    Apart from the several examples quoted by Simon Mansell, it would be interesting to know (though the FSA will ensure that we never do) just how many of those who responded to the FSA’s RDR “consultation” expresssed the opinion that, far from costs reducing after 2012, they will in fact increase. I rather suspect that most comments will have predicted an increase rather than a reduction. Yet the FSA merely says that the RDR isn’t going to mean any increase in the costs to consumers of accessing advice.

    Yes, CAR may well address the common practice amongst the banks of charging unreasonably high percentage levels of commission for flogging (onshore) investment bonds. But the costs of providing advice, which is what IFA’s do, simply cannot fail to rise, for the simple reason that there’s just no further capacity for absorbtion of the relentlessly increasing costs of regulation. Just how hard can an orange be squeezed before the pips start to fly out?

    On the one hand, the FSA has admitted that the costs of RDR implementation are going to be between £1.4 and £1.7Bn yet, on the other, suggests that as far as costs are concerned, consumers will be no worse off. So from where will these huge costs be recovered? If not consumers, the only other parties from which they can be recovered are practitioners. On just what basis is the FSA assuming that practitioners and providers won’t, or indeed shouldn’t, pass on these costs to their customers?

    The FSA, it seems, expects everyone but itself to tighten their belts and to do more and more, better and better, for less and less. Profit margins are under relentlessly increasing pressure, whilst the costs of compliance just keep going up and up and Adair Turner continues endlessly to call for more staff, more resources, more powers and, as always, MORE MONEY. For just how long can this state of affairs continue? Certainly not indefinitely. Is it any wonder that more and more IFA’s are bailing out of an industry being bled white by its regulators?

  37. The reality for the FSA will be when 20,000 fewer IFA’s are no longer longer authorised and paying their fees. Only then will the commercial reality of what they have done start to hit home as the FSA have a big hole in their accounts. The shame of it is they still won’t be accountable for the mess they have created.

  38. Re Andy @ 10.22 Agree but Less advisers=less complaints=FSa will claim it is doing a great job and the public will believe their spin.

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