IFAs’ RDR misconceptions raise important questions
Just months away from the implementation of RDR, the IFA community is seemingly still harbouring worrying misconceptions.
The retail distribution review is just months away yet there still appears to be an astonishing amount of ignorance and misunderstanding. And I am not talking about consumers here.
It is sections of the IFA community that still seem to be harbouring worrying misconceptions.
I am not sure if this is down to lack of reading and research, entrenched attitudes or a lack of comprehension. But it is something that needs addressing.
One argument I see again and again is that RDR will not apply to banks or is in some way going soft on them.
In a reaction to one of my columns last month, one IFA suggested that banks would be able to operate hidden charges. The implication was that while IFAs would be forced to charge, banks’ advice would appear to be free.
Where do these misconceptions come from? Some banks may at one stage have fought tooth and nail to keep the status quo but they lost.
They are undergoing major upheavals in order to become RDR-compliant.
They, like IFAs, will be forced to be explicit about how they are charging for advice if they choose to give it – and this applies to both restricted and whole-of-market advice.
That is why we have seen Barclays go execution-only and HSBC scrap its tied advice service with the loss of 650 jobs.
HSBC felt it would not be able to charge a high enough fee to make tied advice work. This itself says something about the level of hidden charges consumers were paying but which will now be exposed.
Last week RBS said 600 jobs would go from its financial planning service – that is half ofthose the service employs.
RDR should create a more even playing field where fees and charges are transparent to the consumer.
This is why fund managers are producing RDR-compliant share classes.
Someone who goes into a bank branch seeking advice will have to be told what type of advice they are receiving and what that advice will cost.
How the charge structures are put together is still being decided. In fact the FSA says bigger firms including banks are more likely than smaller firms to be behind the curve in putting together their post-RDR proposition.
But do it they must. And investors will then know they are paying and will certainly not think they are getting a free lunch.
Like IFAs, banks do not know how their customers will react and most fear a fall in the numbers seeking advice.
Like IFAs, banks do not know how their customers will react and most fear a fall in the numbers seeking advice
But those who do pay are likely to become more engaged, asking more questions.
This is a revolution in financial advice – and, as with all revolutions, no one knows quite how the pieces will land once they have been thrown into the air.