During the six-year-long gap between when the RDR kicked off and when reforms came into effect, it was understandable that a significant proportion of advisers felt uneasy. Changes to qualifications, ongoing professional development, fee transparency and commissions required an overhaul in some firms’ models. But now, you’d struggle to find more than a handful of advisers who would fight to reverse it.
This is because, while professional indemnity and compensation scheme bills have undoubtedly put pressure on margins recently, the overall trend since the RDR in 2012 has been a boon for advice businesses, which have seen surges in demand, revenues and profits.
It is against this backdrop that the FCA is going back to the market to see where it thinks we are now.
Do advisers agree that after the watershed reforms, and the subsequent Financial Advice Market Review, which specifically focused on affordability and access issues, a more “resilient, effective and attractive retail investment market in which consumers would have confidence and trust” was in place?
Frankly, there’s a huge amount of good news. Studies suggest product bias has come down, there is (slightly) more shopping around and adviser numbers are back on the up.
But, as the regulator notes in its call for input on how it should evaluate whether the RDR and FAMR have been a success: “We have some concerns that, in parts of the market, there may be problems with conflicts of interest, poor treatment of consumers and misleading or confusing communications. Consumers can struggle to assess the cost of advice and may overpay for services which they do not need.”
It does not specifically mention this in its paper, but one of the key trends to emerge since the RDR has been vertical integration and a trend moving towards restricted status (or retaining “independence” within a group structure which also includes asset management, platforms or advice technology).
One of the short-term indicators of RDR success will be that “consumers understand the difference between different types of advice”. I’m not sure they do. Another will be for firms to “describe their advice services appropriately as independent or restricted”. Again, I’m not sure some do.
When it comes to the conflicts and charges question, the FCA has already found that restricted advice is not cheaper than independent. What would it find if it took a much deeper look at how the advice at major vertically integrated firms really operates today? Have we essentially bred the same conflicts between providers and advisers that commissions did, but they now just live under the same parent?
The regulator has allowed advisers to dictate where it casts its gaze. They should not miss this opportunity to input at a critical moment for the profession.
Justin Cash is editor of Money Marketing. Follow him on Twitter @Justin_Cash_1