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FCA under fire as MPs cite RDR for creating advice gap

Giving evidence to the committee on Tuesday, FCA chief executive Martin Wheatley proclaimed RDR was a success that delivered “a more transparent, professional and much better served” industry which now has more advisers than 12 months ago.

His comments were criticised by committee member Conservative MP Mark Garnier who stated that adviser numbers had fallen during the last three years. He added that RDR created a “commission bias lag” for some formerly advised customers who were now unable to afford advice, and were often left with unsuitable products.

Mr Garnier said: “RDR has had an impact on innovation and increased costs. Advice is less available to the consumer and we have a widely known advice gap.”

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Fellow committee member Jesse Norman urged the FCA to include a full cost/benefit analysis of RDR when it reviews the process later this year.

However when pushed by committee chairman Andrew Tyrie MP, Mr Wheatley added that more work needed to be done to ensure the definition between an advised and non-advised online sale was clearer. A consultation on the subject is due to be launched in the next three months.

Mr Tyrie showed frustration at Mr Wheatley’s “FSA speak” and said it was “such hard work to try to get clarity” during questioning.

Mr Garnier accused Mr Wheatley of a “postmodern Nuremberg defence” of junior Lloyds Banking Group sales staff, after he said they were simply following the bank’s sales-based incentive schemes.

The bank received a £28m fine in December for encouraging staff to sell £2bn of products that customers did not need.

Meanwhile FCA chairman John Griffith-Jones said the advisory industry was working on automated simplified advice systems to cater for orphaned clients. He added: “We should encourage innovation in this area. I’d rather have good automated advice than hidden trail commission.”

Co-operative Bank crisis
Mr Wheatley and Mr Griffith-Jones also disavowed the processes of the previous FSA regime which approved the appointment of the Rev Paul Flowers as chairman of the Co-operative Bank, based on a one and a half hour meeting, and promised the committee they “wouldn’t shy away from its ineptitude”.

Adviser View

Simon Mansell, founder of Worcestershire-based IFA Temple Bar Associates, said: “We were always told that RDR was consumer driven but it has been counter-intuitive and driven the advice market away from the mass market.”