A review of financial advisory market by the Financial Conduct Authority called the Retail Distribution Review (RDR) brought in new rules on financial adviser degree level qualifications as well as disclosure of adviser fees on 1st January 2013. It has been in place for 10 years now, so what are the winners and the losers?
RDR required that when financial advice is given, a clear fee disclosure should be agreed with a client before any advice is given. Surprisingly, if the advice area was for life insurance or protection or if it was a ‘non-advised’ service then firms could and still can take full commission. In short, come to use for advice on your pension annuity and we must agree a fee with you. Go to a ‘non-advised’ annuity service, then no fee is payable by consumers, but the firm can take full commission without any advice liability.
Before RDR came into force, we campaigned against commissions for non-advised services as we perceived an unfair advantage for firms not taking on any advice liability, consumers having no protection but paying extortionate commissions from hidden charges. We lobbied with our MP, met with him at Westminster and continually hounded the Treasury Select Committee highlighting these flaws as well as our believe that big players in finance such as banking groups would pull away as they could not meet qualification costs and would move away from advice and to non-advised selling. This has since proved the case.
Financial advisers in general are more professional although there are many that still do not disclose their fees clearly.
Financial products have become cheaper and more competitive.
Wealthier clients tend to achieve better terms and discounts.
Many financial advisers still hide behind % upfront and % ongoing yearly fees without actually disclosing exactly what they are charging (commission in all but another name) - the FCA has not done enough about this to force clear, transparent fee disclosure.
There is a larger advice gap than even as poorer households cannot access financial advice. Previously, financial advice for lower income households could be paid for by commissions spread over charges over the coming years.
Direct to consumer, non-advised platforms give little protection or comeback for consumers who ‘mis-buy’. Therefore, the FCA has recently introduced ne ‘consumer duties’ highlighting the flaws that need to be stamped out.
We suggest that commission-based advice should be allowed again. This would allow lower income or lower value savers to access independent financial advice and spread advice fee costs over a few years via commissions.
In addition, this would encourage large distribution firms such as banks to re-enter the advice market to make advice available to the masses.
That said, we also believe that qualification standards should be increased making Chartered status the only qualification level to be able to offer advice which would stop banks re-entering the advice market with ‘GCSE’ only equivalent qualified ‘advisers’ that may create poor consumer advice outcomes.