Time for the regulator to let market forces reign

John Lappin

Just two weeks ago, I wrote that there was a danger of the FCA subjecting advisers to a sort of perpetual RDR.

The minutes of the recent FCA board meeting may well lend credence to that view. What is now vexing the FCA is the boundary between advised and non-advised sales, particularly where the latter uses decision trees. It is also worried about the payment of commission on non-advised sales.

Were the FCA to act, it wouldn’t represent an immediate blow to advisers, particularly those firms that don’t have any significant execution-only ambitions. It could even throw one or two spanners in the works of potential rivals.

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But that rivalry may actually be a false one. Someone surely still has to convince people to save and invest more. Someone ought to be convincing people to put more into their auto-enrolled pension funds as well. It might even be worth revisiting simplified advice, although that appears to have dropped from the agenda.

From a consumer point of view, at the accumulation stage, if they can’t afford full independent advice, is it really to society’s wider benefit to say they must never be steered in any direction and that a sale cannot be incentivised? Is that really the optimal outcome for society?

Where the RDR itself may have created a trickier and less welcome anomaly is around annuity advice and the situation regarding retirement advice in general. The current system may make it much more lucrative to sell a direct annuity offer rather than provide proper advice about the decision. It feels like the numbers who should be getting advice about all manner of pension matters – including changes to the state pension or managing a retirement date that is no longer fixed – should be much higher not lower.

The situation surrounding Sipps and drawdown feels as if it may get particularly fraught and anything that minimises the advice available is surely problematic. Yet that may be what the RDR is doing.

The difficulty here is that it may be nigh-on impossible to come up with an overarching regulatory solution. The commission ban, I would argue, has always had less-than-ideal outcomes around retirement advice, whatever its other benefits. I suspect a similar impact is about to be witnessed as small- and medium-sized employers try and grapple with auto-enrolment without help from advisers.

Of course, a hard-line interpretation across all channels would really bring simplicity. Demanding everyone charges pure fees for everything would bring even more clarity but also do such damage to distribution that it would start to significantly undermine many providers and fund managers too and arguably deal another blow to the savings culture.

The FCA may never go that far, but the distribution landscape – with all its anomalies and unexpected outcomes – is one the regulator has effectively created.