No commission, new bias: MPs’ verdict on £3bn RDR

Advisers that have spent much of the past few years bemoaning the consequences - first the potential and now the actual - of the Retail Distribution Review love the catharsis of their sector champion Andrew Tyrie and his Treasury Select Committee taking up their cause with the regulator.

This past Tuesday (4 February), during the bi-annual evidence session in front of Mr Tyrie’s Treasury Committee, Financial Conduct Authority chief Martin Wheatley was roundly taken to task.

The committee’s verdict so far? Mark Garnier said the rules, which he estimated had cost in the region of £3bn, had resulted in far fewer advisers servicing a more limited demographic of clients, with less incentive to innovate.

Worse still, while the rules removed the commission that was said to be the cause of insidious bias, the new rules have merely had the effect of encouraging advisers concerned for their financial security to deliberately not disturb portfolios to retain legacy trail.

So while we’re cheering the loss of ‘product bias’, we have ushered in an era plagued by what he termed “commission lag bias”.

Mr Wheatley attempted to stand firm: he provoked a row when he pointed to a modest rise in adviser numbers in the past 12 months since RDR implementation and said the rules had broadly been a success.

I’m inclined to agree with both parties - and as I said in my column earlier today unless Mr Tyrie persuades government to join his cause these dramatic sessions will not achieve much in any case, no matter how fun they are to watch.

The Committee is likely to launch its own review of the RDR in 2015 after the FCA’s year-end two-year implementation review, as part of which it has promised to conduct a full cost/benefit analysis. Mr Wheatley can look forward to more uncomfortable sessions in the hot seat.

Simple advice answers

One of the FCA’s pet solutions to the advice gap cited by the TSC is online simplified advice, but on this too faced a barrage of questions over as to whether consumers could confuse execution-only with advice when using a web-based advice system.

The end result was the axiomatic revelation that advice can indeed be delivered without the need for face-to-face contact, and more importantly that the FCA is to publish guidance on simple advice “in the next quarter”.

For one reason and another that paper is going to prove crucial in the overall scheme of things post-RDR - it will make interesting reading.

‘No cost’ advice

This one had nothing to do with the TSC, but rather relates to our report this week on discretionary manager Westbury Private Clients’ offer to self-invested pension investors that it will refund advice and product fees.

Pitching the service as ‘no cost advice’ raised a few eyebrows here and it is our understanding it could do so at the regulator, but after a bit of back and forthing Westbury confirmed it doesn’t pay any rebate to the adviser so is not breaching any RDR rules.

It’s an interesting case for a regulator that has been immovable on the principle of presenting advice costs to clients.

Unprotected policyholders

Elsewhere this week we carried a report yesterday (7 February) on the unfortunate case of Brian Henderson, whose daughter Karen Edwards had her claim on his £70,000 life insurance policy refused because of misinformation given by their now deceased adviser in the days before protection sales were regulated.

To make matters worse her mother’s policy, placed with the same provider, Scottish Provident, has had its sum assured dramatically reduced from £70,000 to £28,000 because the adviser similarly gave inaccurate and incomplete information.

In a separate case involving a £240,000 policy that did not pay out in 2012, the adviser, Trevor Oakley of now wound-up PBF Financial, admitted he did not go through documentation with clients and did not know the terms and conditions applied to terminal illness.

Amid all the wrangling over the legacy of RDR, perhaps this is a reminder of why at least some regulation is required.

Protection perceptions

While we’re on protection, the final story I wanted to highlight this week that on a 60-page study produced by The Syndicate, a collaboration between Swiss Re and Protection Review, which found that a worrying number of consumers are avoiding advisers amid fears they are not independent of provider influence.

Peter Le Beau, co-chairman of Protection Review, said the research showed only 21 per cent of consumers chose professional advice as their first port of call for protection products and that the study found may were sceptical that advisers were genuinely whole-of-market and suspected “commission would lead to product bias”.