Let’s get real about the RDR

He argued this was an incontestably good news story cynically twisted by us to generate clicks. Allow me to retort.

First, the background: the Financial Conduct Authority yesterday morning published its two-year ‘phase one’ post-implementation review of the new rules, alongside three ancillary papers comprising of a thematic review into RDR charging compliance, an analysis of any ‘advice gap’ arising from the new rules, and consumer research into ongoing advice services.

The main review, undertaken and published by European Economics, gave a glowing appraisal of the changes and their performance against stated objectives.

In particular it cited moves to professionalism and that many advisers are going beyond the level four minimum to chartered and certified, that the removal of commission has seen a broader array of products being recommended, and that product and platform charges have fallen, often by more than just the level of the trail which the new rules have banned.

On the flip side - and the commentary didn’t contain much of one - advice charges have actually risen and in some cases could have more than offset the fall in fees elsewhere, and clarity over what is being paid and services received, especially in relation to independence or otherwise of advice, is poor.

It is of course positive that advised investments are no longer indefensibly biased to those which just happened to pay trail commission

In fact, the report said it was not yet able to say whether overall cost of investment has come down for consumers, or to point to evidence of tangible consumer benefit. We mentioned everything above, but headlined on this last point.

Now before I go on let’s get one thing completely clear: I’ve been on the record as saying a number of times and I will repeat again here, I am strongly in favour of the broad tenet of the reforms.

It is of course positive that advised investments are no longer indefensibly biased to those which just happened to pay trail commission. Longer-term, clients should obviously benefit from higher qualification standards, especially if many are going beyond the new minimums.

I have always said as well that good advisers with a client base which understand the value of their service will not suffer as a result of the changes, and could even benefit. In pointing to a potential increase in profit for a number of planning firms, the paper seemed to bear this out.

So I do not agree with the tenor of many of the moribund comments you will see across the forums on this site and others. For all of that, however, I am equally adamant that we must not sweep under the carpet where the RDR has fallen short, or get defensive over its legacy.

The rules are here to stay now; the principles they establish are sound. Now let’s get real on the consequences and deal with the detail.

Starting with the advice ‘gap’. The Towers Watson report published alongside the review claimed there was evidence of a surplus of advisers rather than a lack, supporting general findings that the rules have not significantly reduced access to advice.

The problem is that this doesn’t accord with most are seeing in the real world.

The number of advisers, while now stabilised and certainly not depressed in the way predicted by doom-mongers, is down from before the RDR. As we’ve seen from countless reports, more of those that are left appear to be moving up the value chain to focus on holistic planning for wealthier individuals.

In truth the study worked within narrow parameters set by the FCA which precluded any primary research and applied so many assumptions as to stretch credulity. And even then, it contained an admission that the changes could be disenfranchising smaller-pot consumers.

The FCA regrettably did not model the effects in terms of advice access before pressing ahead with the RDR, it would be as well now not to continue to assert there have been no consequences.

More needs to be done to support ‘simplified’ advice, especially with the radical pension reforms looming. Project innovate is a good start, but the sector will probably need more assurances and there have been calls for qualifications rules to be relaxed for simple processes to create an advice entry point, which make sense to me at least.

Clarity on advice services is another key area for improvement - and to be fair the FCA has admitted as such. Again, it would have been best if the many voices which derided the definition changes had been heeded earlier, but with the suggestion we might move away from ‘labels’ altogether we’re on the right track.

Finally, more needs to be done to help advisers reduce their own costs, beginning with alleviating the growing regulatory fee burden they face. The hard truth is that big FCA fee hikes in recent years and huge (and at times unfair) compensation scheme levies are the main reason why fees have risen.

So, yes: I do see the benefits of the RDR and applaud its successes. Generally the standard of advice should improve and that can only be a good thing for many consumers.

But those not able to see an adviser, or for whom overall costs have increased, or who didn’t understand they were getting a restricted process probably involving a limited product selection, may not see these benefits. These things must be fixed.

ashley.wassall@ft.com