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MM leader: Has the RDR been worth £2.6bn?

Natalie Holt Peach 250x255

It is estimated the total cost of the RDR to financial services firms could run to £2.6bn by 2017. This is against initial cost estimates of £470m. Two years in, the question has to be asked, was it all worth it?

The FCA’s predictable answer is it is too early to say. But its recent post-implementation review, published this week alongside reams of supporting research, does help to shed some light on how the retail investment market is faring following the biggest regulatory reforms in a generation.

The regulator is keen to talk up the RDR’s successes, and points to areas such as increased professionalism and reduced instances of product bias. These are easy wins given the commission ban and reaching minimum qualification levels were prerequisites of the RDR, though advisers should be duly credited for going above and beyond QCF level four.

But it is the “could do better” aspects that should make the regulator, and advisers, sit up and take notice. Unfortunately, the failings that have been uncovered are by no means new.

The latest wave of the FCA’s review into charges disclosure found over a third of firms did not inform clients of the total advice charge for ongoing services in cash terms. This is worrying, but what is perhaps more worrying is the advice profession believes cost disclosure as the FCA prescribes is simply not workable. Institute of Financial Planning chief executive Stephen Gazzard, whose members are not known for being backward on the RDR, told Money Marketing : “If the market is reduced to competing on fees it will be the cheaper and weaker service offerings that may take the majority of business.” Not quite what the FCA had in mind.

For greater understanding of the impact of the RDR thus far, the research underpinning the FCA’s review is definitely worth a read. Of particular interest is the work from Europe Economics, which raises a warning flag about the future competitiveness of the advice market. It says confusion about charges, and the difference between independent and restricted advice, could actually end up damaging clients’ ability to shop around for advice.

Clearly, the indy/restricted problem is not one of advisers’ making. But the issue of lack of clarity is compounded by some advisers’ failure to spell out charges in terms clients will understand. Ultimately, this will end up hurting the majority of advisers who are focused on doing right by their clients, RDR or not. 

Natalie Holt is editor of Money Marketing – follow her on Twitter here


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There are 13 comments at the moment, we would love to hear your opinion too.

  1. Can anybody point out to me how consumers have benefited from the changes?

    1. Less advisers
    2. Higher charges in many instances
    3. Higher minimum investments with many firms
    4. Greater regulatory costs burdening fewer regulated firms

    Has the take up of specifically designed financial products been higher? No.

    Do consumers understand what independent means? No.

    Have we rid the world of mountains of unnecessary paperwork? No

    All in all it has been a shambles to which the FCA seeks to apply a veneer of success. Costly beyond imagination, unworkable in many instances, confusing to consumers and overall a worse position for all but the high net worth brigade.

    Success? My arse.

  2. Of course it hasn’t ! it is an unmitigated disaster as all regulatory/governmental interference in markets invariably is.

    AND MMR ??? – it’s already falling to bits !

  3. The RDR has two blatant flaws. Yes it has achieved a great deal for which it is not being given due credit and people like Alan Lakey are wrong when they spout on about the reduced number of advisers or higher charges. The RDR has failed to close the advice gap (although the FCA disingenuously state it has not increased it!) and it has cost far, far too much. Hence the increased cost to consumers. And if the true cost had been calculated (in spite of protestations by everyone in our profession) then the RDR as it turned out could not have been justified in the first place without other precautions being taken.
    Professionalism (which is a plus) has nevertheless come at a cost – there are only a fixed number of working hours in a week to do the CPD. Independence has also come at a cost (due diligence, research, evidencing etc.). As for adviser charging, over the longer term it may prove to be reasonably successful in that product charges are coming down and the cost of advice is identifiable.
    The cost was too high and I am afraid the FCA predecessors were imho grossly negligent by underestimating the likely cost to the industry in spite of all indications to the contrary.
    And the RDR failed to address the fundamental issue of the conflict between advice and *&*^ product.

  4. The adviser numbers are down massively.

    Compare the numbers of advisers in 2010 with 2013 and there is a substantial drop.

    Look at the decimation of bancassurance. Whilst we all agree that bank advice is frequently flawed and generally single-tied it did provide a conduit for those consumers that would not/could not approach an adviser

    Also, I’m no more professional than I was in 2012.

    Secondly, my clients are no better off than in 2012.

    Who are the winners here?

  5. @ Sam Caunt

    The headline was – “Has the RDR been worth £2.6bn”

    Your extremely long response (why use 3 words when you can rant on with 100s) – it hasn’t !!

    Regulatory/governmental interference in markets never works – as the old saying goes

    ‘you cant polish a T*!D no matter how hard you try !

  6. Alan maybe look outside your little world an into the wider market.

    Consumers who approach advisers now are in a far stronger position to:

    1. Understand exactly what they will pay and the service they will recieve.
    2. Know that the adviser will not be recommending a product simply because it pays them more commisssion.
    3. Know that the adviser has a level of knowledge above the frankly pitifil level 3 qualifications.

    There are lots qrong with the RDR but for consumers there have been benefits. Who knows, in the long term these may also help lift financial advice into a more ‘prefessional’ space with the wider consumer population.

  7. “The latest wave of the FCA’s review into charges disclosure found over a third of firms did not inform clients of the total advice charge for ongoing services in cash terms. This is worrying,”

    Hmmm. Can’t help feeling there are bigger worries out there. RDR did not introduce cash disclosure, it’s been there for years. It’s perhaps more “surprising” that firms aren’t doing it. However, from a clients perspective, the only observations I’ve ever heard to the “so that means £10 for every £1,000” statement, is along the lines of “do you really think I’m that stupid?”. To which one can only answer “no, though unfortunately our regualtor is worried that you might be….”.

  8. There have been numerous articles in various publications about this report but this is the first one I have seen which actually considers RDR on a cost/benefit basis.
    There have no doubt been some benefits from RDR and these benefits may not be apparent to the end user, the client, but nevertheless they remain benefits. For example, increasing the qualification level has to be a good thing. Increased knowledge in the adviser should result in improved advice to the client. Increased knowledge in the adviser should also mean that more opportunities for business are identified so the benefit works both ways.
    The removal of commission can only be a good thing. The number of new clients who have come over to me not knowing just how much their previous adviser was taking out of their products is very large.
    However, there seems to be more bad (or indifferent) from RDR than good. In my view the good bits could have been achieved in better and low cost ways. The FCA wants us to give good value for money, but RDR has not given good value for money.

  9. Trevor Harrington 18th December 2014 at 12:31 pm

    And we cannot even agree on whether £2.6 billions is a reasonable price tag.

    Come on chaps – be sensible.

    Even a cursory glance at the above comments shows that nobody is quite sure what they were trying to achieve, and whatever it was, it most certainly was a calamitous error to try and do it the way that they did.


    Because they did not listen to those who know better, and because some people within our profession, gave them encouragement by welcoming regulatory changes which they thought might be commercially advantageous to their own selfish business models.

    Fee payers maintained it was “the only way”, despite it being the easiest system to use if your intention is to rip off your client, whilst those who advocate commission couldn’t get their snouts out of the trough for long enough to realise, or care, what was going on.

    We could not even agree that to make the entire profession resit the same exams which they had already taken back in the early 1990’s, or subsequently on entry to the profession, was an absolute insult, and of no useful purpose whatsoever, unless your intention was to reduce IFA numbers. Unfortunately some “holier than thou” advisers supported it because they thought that they would get a larger market share.

    What is the solution?

    There isn’t one … not until we find a way of putting together a compulsory professional representative body which is not afraid of calling a spade a shovel in front of the regulator.

  10. Nor was it worth the side-effect of killing-off what was left of the protection market. Funny how the RDR detriment to consumer benefit gets relatively little attention in this area. It’s only about the people whose finances are most at risk. I.e. the majority of the working population.

    Ironic after the Treasury went to all the trouble of pointing out the problem of the (then smaller) protection gap and looking for a year or two at how to close it with the “Simple Products Review”.

  11. I agree with Ruth Gilbert, the Elephant in the room is the damage to the protection market. Since 2007 I can count on my hands the number of protection policies I have arranged as I have increasingly done business for clients my age or older, not younger and the banks having laid off most of their advisers who were doing protection and mortgages for people their own age and a few investments here and there (as I did 20 years ago as a new adviser, father and home owner)
    I used to enjoy doing life & cic cover and that dirty word commission actually was an incentive to sell to a clients needs as if it didn’t stay on the books it would be clawed back anyway unlike fees, so you had to sell advice and products which would STICK or your pay dropped.

  12. Trevor Harrington 19th December 2014 at 10:27 am

    Eventually, someone, some great and deep thinking person, a statesman of modern systems, technology and creativity who also has deep felt social morals and care for everybody throughout the entire public spectrum, regardless of their financial well being, will come up with the solution.

    I am not that person, but perhaps that solution could be some sort of payment per the policy, dependent on size, with a maximum and a minimum payment level, to be funded from the premiums that are due to be paid by the policyholder.

    FCA, politicians, and all such other people who meddle in financial services, including the metaphorically blind and realistically ignorant who refuse to take advice from those who know …… please consider this as a consultation document, and discuss.

  13. Ha Ha – Love a bit of irony Trevor !!!

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