A key goal for policymakers is to ensure the upcoming RDR reforms create a level playing field in terms of the transparency of advice charges across all distributors.
There has been concern that in banning commission and overhauling the current charging rules across the industry, the FSA may leave the door open for banks and other vertically integrated firms to circumvent the new regime.
With this in mind, last week’s warning from the FSA that it will be keeping a close eye on this matter is to be welcomed. The regulator is concerned firms offering products and advice may be cross-subsidising their advice costs and making these charges appear artificially low.
The FSA says certain firms are taking a narrow view of what should be included in the advice costs, for example, excluding, IT, marketing and property costs, and has called on firms to ensure their advice costs are “reasonably representative” of the services offered.
Any positives of the RDR reforms will be undermined if firms are allowed to employ tactics which leave consumers unable to make an informed decision about the service they might require.
Costs are not the only thing to consider but they are an important factor and should be displayed clearly and in a simple manner.
The FSA is also continuing to warn that it will take action if it believes firms are looking to get around the new adviser-charging rules by offering other payments or incentives to secure distribution.
The rapidly changing technology and product landscape offers adviser firms the opportunity to streamline their processes and sharpen their client offering with plenty of benefits to the end investor.
But there is also the potential for some firms to breach the spirit of the new rules and the FSA must be prepared to act if it thinks certain firms are continuing to benefit from incentives that should have been removed.
Elesewhere, the FSA has revised its RDR consumer guide and removed the previous unhelpful and confusing wording around independent and restricted advice.
It is primarily the advisers’ responsibility to inform clients about what the RDR means but clear information from the regulator is also helpful.
For consumers who do not use an adviser, the problem is not explaining the RDR but rather educating them about when advice can be of value and setting out all the options available. The perfect chance for a reinvigorated Money Advice Service to step up to the plate?