FCA: Improvements needed on adviser charging

RDR was introduced in 2012 to raise the minimum level of adviser qualification, remove commission payments to advisers and platforms from product providers, and improve the transparency of charges and services.

The review found that commission is no longer a driving factor in advisers’ recommendations, with a continuing decline in the sale of products which had higher commissions pre-RDR and an increase in the sale of those which paid lower or no commission.

The review also found that an increasing number of financial advisers were gaining further qualifications.

However, the overall impact of the RDR on price has been mixed. While product and platform costs have broadly fallen, adviser charges appear not to have decreased.

Furthermore, the review showed that further improvements are needed, particularly in the way that the cost, in cash terms, of ongoing services is disclosed. The research suggests advisers should be more confident discussing their charges for ongoing services.

The review found that despite the majority taking on-board the findings of two previous reviews, which uncovered significant and widespread failings, one firm included in this round of supervisory work has been referred to Enforcement due to not sufficiently engaging with the changes required by the RDR.

Martin Wheatley, chief executive of the Financial Conduct Authority, said:

“The RDR aimed to create a truly professional financial advice sector; one that provides advice based solely on investors’ best interests. It is still early days but the indications are that the sector has responded positively to the reforms.

“Importantly, we have seen a reduction in product bias, with a very noticeable decline in the sales of those products that before RDR came with higher commission.

“These are positive signs but we know there is more to do. For example, early next year we’ll be looking at how we might encourage better disclosure of information to consumers. And, in 2017 we’ll undertake a further review of how the RDR has worked. It is vital that we continue to keep these wide-ranging reforms under review.”

Consumer Panel Chair Sue Lewis said:

“The FCA’s findings are encouraging. They show the RDR is on course to generate positive long-term changes in the market for financial advice, such as increased competition and more understanding of the value and take up of advice.

However, we remain concerned about cost transparency. There are two issues. As the FCA has repeatedly found, it is still difficult for consumers to get a straightforward quote for the cost of financial advice in some circumstances, and it is not always clear to consumers what service they are getting for recurring charges. This is improving but more needs to be done.

The more serious problem is in the underlying investment market. Advisers cannot do their job properly if they cannot tell their customers the true costs of investments because these costs are hidden, or unknown. Without transparency and the means to compare the costs of different investments, a competitive market cannot exist.”

The Panel also welcomes the conclusion by the FCA that the ‘independent’ and ‘restricted’ labels for advisers are a source of confusion among consumers. It looks forward to working with the FCA to resolve this issue.