Regulation  

RDR a 75% success (the 25% is advice gap and definitions)

The Financial Conduct Authority would judge the Retail Distribution Review as a 75 per success due to the industry making strides in professionalism and transparency, but questions remain over the perceived advice gap for mainstream consumers, Deloitte has said.

Mr Power said that the banning of commission was “key” as “a lot” of advisers were offering services that could appear to be ‘free’, while increasing qualifications demands have prompted the industry to embrace professionalism.

In an interview with FTAdviser, Andrew Power, lead RDR partner at Deloitte, said: “Definitely in terms of transparency and professionalism the RDR has been a success. But I would say given what the FCA was trying to achieve I would tend to think they would say 75 per cent in terms of success and 25 per cent question marks.

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These ‘questions marks’ relate to the perceived lack of access to advice for mainstream consumers - the so-called ‘advice gap’ - and the changes made to the definitions of independence and the new categorisations of ‘restricted’ advice, according to Mr Power.

He added that the latter of these issues is likely to persist as the FCA has shown its intention to enforce a distinction that most consumers do not understand or place value in, but that the advice gap is more of an issue of “semantics”.

Mr Power added that he does not think the majority of the mass market can ‘DIY invest’, but that the regulator has offering options such as offering non-advised ‘guidance’ and ‘simplified’ advice.

He said: “Now in terms of the advice gap, some of this gets into semantics. Does the mass market need regulated advice in terms of a full fact find etc? Probably not.

“Most people would agree with that. The FCA would probably say people don’t need any advice at all and they should be able to figure it out themselves or the advice they need will be very few and far between.”

Mr Power also added that the banks “surprised” everyone by pulling out of the mass advice market so quickly.

He said: “It disappeared and obviously most of them worked out that it wasn’t economic to provide that but I expected them to try and make a go of it for a bit longer. They realised due to PPI and interest rate swaps the downside was too great and there a lot of regulatory risk.

“They are risk averse given what has happened. They would probably be giving it more of a go in terms of cross-sell and now I think they have seen on some of these other products that the cross-sell has got them into trouble and so they are a bit more weary.”

Last month, FCA chief Martin Wheatley acknowledged the advice gap in an evidence session in front of the Treasury Select Committee, saying the FCA had recognised the significant fall in adviser numbers and exit of banks from the sector disproportionately hit lower-value consumers.