For consumers, the intended impact of the RDR was to:
- Increase confidence in financial advice.
- Increase understanding of advice charges.
- Remove provider bias.
For advisers, this saw commissions removed as a form or remuneration, the trail commission many businesses relied upon and valued businesses by just gone.
They also had to decide whether they wanted to be offering independent or restricted advice.
Vertically integrated businesses were able to retain exit penalties conveniently and compliantly renamed commission as a ‘marketing allowance’ in the small print.
For providers, the commission ban saw huge savings by way of trail commission abolition, the facilitation of adviser charging against the client monies invested, execution only capabilities, and for their tied sales forces in particular a clear understanding of professional standards.
For the regulator, then the FSA now the FCA, it needed to ensure compliance with the new legislation.
That means rules, more rules and of course fees charged to regulated firms to feed the need created by more rules. Did it work? Like a curate's egg, in parts.
Persistent advice gap
It is now harder for investors with small portfolios to get advice post-RDR.
Many advisers have segmented their advice depending on the size of investor portfolios, meaning that for investors with small portfolios, it's very hard to get bespoke advice. Instead, you are likely to be risk-rated and sold a model portfolio based on that risk rating.
Many studies have also shown that a kind of £50,000 rule applies and if you have less than £50,000, you are just not attractive to an adviser business.
There's also some difficulty with self-selecting as well, because the smaller your portfolio, the less likely you are going to want to pay an upfront fee, because of course that fee will make up a larger proportion of your assets.
Of course, it should be remembered that general insurance and protection did not have to change the commission structures so, surprise, surprise, volumes have grown.
I think this is a work in progress – the FCA published a review in December 2020.
In summary, after eight years, it has found that “on the whole, the financial advice market is improving, albeit slowly". It noted that “many consumers do not seek, or receive, the sort of help with their finances that would equip them to make better investment decisions”.
Adviser numbers
Hidden bits of unintended consumer detriment are that the number of adviser firms has reduced. This is driven by the cost and complexity of regulation.
The first six months of 2022 saw 5,662 firms and 10,604 individuals join the FCA register.
Over the same period 8,444 firms de-authorised and 11,523 individuals left the register, according to the Autus Data Services FCA Register Summer Landscape report.
