RegulationDec 17 2014

Financial advice sector ‘increasingly professional’

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Financial advisers are offering an increasingly professional service, the FCA’s review of the RDR reforms has found.

The rules were introduced in December 2012 to make the retail investment market work better for consumers.

Regulatory consultant Europe Economics, which was commissioned by the FCA to undertake the post-implementation review, found that the RDR has reduced product bias.

But one unnamed firm has been referred to enforcement because the FCA felt it had not sufficiently engaged with the changes required.

Martin Wheatley, chief executive of the FCA, said: “It is still early days but the indications are that the sector has responded positively to the reforms.

“Importantly, we have seen a reduction in product bias, with a very noticeable decline in the sales of those products that before RDR came with higher commission.

“In 2017 we’ll undertake a further review of how the RDR has worked. It is vital that we continue to keep these wide-ranging reforms under review.”

Despite the FCA’s conclusion that the reforms were working, the City watchdog found issues surrounding the clarity of costs and charges.

A thematic review on the issue found 35 per cent of firms did not disclose the total adviser charge for their ongoing services in cash terms.

Of the firms using hourly rates within their charging structure, 57 per cent did not provide an approximation of how long each service was likely to take.

The report also found the much-feared advice gap - caused by advisers leaving the market because of the reforms - was limited to those who were unwilling to pay the true cost of advice, those who were unengaged with the investment market and those who were seeking advice but firms were unwilling to provide it.

It claimed the first of these existed before RDR while the second cannot be considered a “gap” because it was not made up of people looking for advice in the first place.

The third group was likely to have increased as a result of RDR, the report finds, but said this applied to a small number of firms and it should be resolved by the market eventually.

Separate research by Towers Watson - which fed into the review - suggested there were 30,000 advisers compared to 25,000 required by customers.

Chris Hannant, director general of Apfa, said: “One of the key objectives of RDR was to increase standards and increase professionalism, and it’s encouraging that the FCA has recognised that most advisers have gone beyond the minimum qualifications required.

“The industry is doing all it can to find lower cost ways of delivering advice, but the regulator needs to play its part too by reducing regulatory costs.”

The FCA said it will be publishing final guidance on removing unnecessary regulatory obstacles to innovation early next year.