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Taking positives from the FCA’s post RDR reviews

All too often we focus on the negatives from FCA reports and reviews. The industry should be taking the positives from the two reviews published this week. They say a lot about the evolution of the advisory market. Here are some excerpts from the FCA’s communication to journalists entitled: ‘Early indications that reforms of financial advice are working’.

The first stage of the post-implementation review of the Retail Distribution Review (RDR), along with thematic work into the disclosure of ongoing services and charges, has found that financial advisers are offering investors an increasingly professional service tailored to their individual needs.

“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.” Martin Wheatley, chief executive of the Financial Conduct Authority (FCA)

Europe Economics, which was commissioned by the FCA to undertake the post-implementation review, found that the RDR has reduced product bias. In particular, there has been a 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 pre-RDR.  This is a sign that commission is no longer a driving factor in advisers’ recommendations.

In addition to meeting the required standards, Europe Economics found that an increasing number of financial advisers were gaining further qualifications, demonstrating growing professionalism in the sector.

There is little evidence that the availability of advice has reduced significantly, with advisers still willing and able to take on more clients. Europe Economics found that while a small group of those with less to invest may find it more difficult to find an adviser, there were still those in the market willing to serve them.

Thematic review: Adviser charging and services

The review published today shows material improvements in how firms disclose the cost of their advice, their scope of service, and the nature of their services to clients.

The improvements point to increasing professional standards and should mean those seeking advice are better placed to understand the nature of a firm’s services and how much they will cost.

As part of the thematic review, the FCA commissioned research into consumers who had bought financial advice. This found that the ongoing element of advice motivates many people to use an adviser in the first place, reassured that a trusted professional is taking care of their investments. The research suggests advisers can be more confident discussing their charges for ongoing services as clients value the peace of mind these services provide.

In 2017 the FCA will undertake a further review of just how well the RDR has worked. Think how far  the market will have evolved by then… driven not by regulation but professionalism and good business practice.

 

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