RegulationFeb 6 2013

Close to 700 advisers write to FSA over RDR double-charging

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by

Close to 700 advisers have written an open letter to the FSA, highlighting concerns of consumer detriment arising from the Retail Distribution Review.

The letter, compiled through the Cherry advisory forum, warned that consumers are now paying for services twice: once through adviser charging, and second through increased provider fees.

The letter, signed by 680 IFAs, was addressed to incoming Financial Conduct Authority chief executive designate Martin Wheatley.

It said: “The RDR was largely justified by claims that the removal of commission as a form of remuneration would somehow ensure that mis-selling would disappear and be replaced by products that contained lower costs and charges, thus enabling consumers to afford to direct part of their intended investment to paying for advice from a newly-professional species of IFA.”

Instead, the advisers warned that fund managers and pension and annuity providers have used the RDR to retain the money they would use for commission and boost their profits.

The advisers warned that without action, the regulator would be letting down all advisers who had backed the RDR and would provide justification for its opponents.

It comes after a poll of 500 forum users found the majority in the advisory sector were uncertain about maintaining their fee income during 2013.

Donna Hopton, managing director of Cherry, said the research found only 10 per cent believed the RDR would have a positive effect on their fee income.

Background

In January, Steve Laird, director of Belfast-based Carrington Wealth Management, said he believed many fund management groups could be charging the same AMC - normally 1.5 per cent - as they had in 2012, despite not having to pay advisers commission in the post-RDR environment.

That same month, it was revealed that MetLife had written to advisers, stating it was increasing the AMC on its Income for Life Bond in the wake of the RDR, claiming harsher tax treatment of adviser charging than commission.

A spokesman for MetLife said he expected the practice to be widespread in the market, adding: “When commission was paid the charge was treated as a business expense and reduced the amount of tax we had to pay.”

In November 2012, Deloitte warned there could be 5.5m financial advice ‘orphans’ who are either unable or unwilling to pay adviser charges and will most likely end up going directly to product providers.

Adviser Tweet:

Brian Brotherton, principal of Essex-based The Partnership, said: “The RDR has been a total nightmare, pushed through on the pretence that pricing would get better. But there have not been any changes.”