Financial Advice Fees 10 Years After RDR

Published / Last Updated on 09/02/2023

In 2008/2009 we had the Credit Crunch Crisis with banks failing and being bailed out by governments around the world due to toxic debt from lending too much money to people that could not afford it.  This caused a global stock market crash and subsequent recovery.

The fall out from that in the UK brought about the Mortgage Market Review (MMR) with lenders and mortgage advisers having tighter rules on capital requirements and mortgage suitability and affordability tests including stress tests on mortgages if interest rates went up.  This started in 2009 and hit our desks in 2014.

Running in tandem with this was the Retail Distribution Review (RDR), a review of retail i.e., consumer facing financial services for the industry, which started in 2006 before the credit crunch and came into force on 1st January 2013.  We have now completed 10 years of RDR.  

What did RDR change and was it a success?

Non-Advised Services

Financial Advice Given

No advice is given, you choose the product that you want.

You are fully advised by a financial adviser on the right options for you.

No financial qualifications required for the person arranging your pension or investment.

Financial Advisers must have a minimum financial qualifications at Level 4 (equivalent to 1st year Bachelor's Degree).  Financial Advisers then studying, more professional examinations and training to Level 6 (equivalent to full Bachelor’s Degree with Honours) BA (Hons).

No requirement to keep up to date with latest industry, tax or financial developments.  No requirement to have structured learning or study ongoing.

Minimum 35+ hours of structured learning and study (independently certified) plus more personal learning time for Continuous Professional Development (CPD) required each year to keep knowledge up and develop further skills and knowledge all the time.

Full commissions can still be paid to the firm without the need to fully dislclose.  Nothing changed technically for direct sales operations.

Commission was banned.  All financial advisers must quote you a fee before offering services on pensions, investments, taxation and trusts although commissions can still be paid for life insurance policies only.

Liability for Wrong Policy Choices:  No liability on the firm for advice as you have made your own decision.  You have no protection if you ‘mis-buy’.

Fill liability on the financial adviser firm for poor or negligent advice, wrong policies, investment outside risk profile, mistakes and more.    You have protection under the FCA rules, financial adviser professional indemnity insurance policies and the Financial Services Compensation Scheme if the you need to claim compensation or the financial adviser goes into liquidation and you have been ‘mis-sold’.

Result:  Banks, insurers and investment companies closed their financial advice arms.

Result:  Some financial advisers left the industry but many stayed and were already qualified or have since qualified.  Full independent financial advice is still available.

Result:  Banks, insurers and investment companies continued and still do to take full commissions on products they sell or get paid on when they introduce you to another firm.

Result:  Most financial advisers simply adjusted their commission models to a % upfront of your wealth and a % each year ongoing as an ongoing trail fee paid from your policies

Some financial advisers, but not many, like us were already offering a Fee Only, nil commission service so not much changed for us, we just kept developing our services.  Some financial advisers have since moved to offer these services or a hybrid service.

We Warned the Treasury Select Committee (TSC)

We warned the TSC many times at the time and also lobbied the TSC MP members along with our own local MP that whilst RDR was a good start, there were still some pitfalls that would result in people no longer being able to access financial advice as well as both non-advised firms still taking commissions and financial advisers still taking % of your wealth would be over charging for limited service, which as since proved to be the case.

More Professional

That being said, we believe RDR has made the financial adviser industry more professional in qualifications, approach, services and standards and probably at the same if not a better standard now than our Chartered Accountant or Solicitor colleagues.  Product charges and transparency have also dramatically improved to offer better value for money for consumers.

New FCA: Consumer Duties Start in 2023

There are still rogue direct firms doing things they should not be doing or pretending to offer advice when they are not.  There are still rogue financial advisers mis-selling and taking huge % fees when they have nowhere near the work to justify the fee.  This means all of the above under RDR was still not enough as we warned.  The FCA has now introduced a new set of Consumer Duties rules for all firms, be they financial advisers or banks, insurers and investments firms.

There are 4 Pillars of Consumer Duty that we have explained in a separate video for you.

Consumer Duties

  1. Governance of products and services - is the financial business being run with the right approach for consumer ethics and employee welfare too?
  2. Price and value – is the value charge a fair reflection of costs for works and time involved as well as the liability taken on?
  3. Consumer Understanding – what is the client’s knowledge and experience of finance, should they really have that expensive, complex product if they have little understanding?
  4. Consumer Support – what is both initial and ongoing support for you?  Do we ensure continued support and access to support for you?

This year marks the start of a new era in financial services and financial advice under Consumer Duties which we believe will be for the better of all consumers.

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