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