Opinion  

No commission, new bias: MPs’ verdict on £3bn RDR

Ashley Wassall

There was only ever going to one story topping the most read, commented and recommended charts on FTAdviser this week.

Advisers that have spent much of the past few years bemoaning the consequences - first the potential and now the actual - of the Retail Distribution Review love the catharsis of their sector champion Andrew Tyrie and his Treasury Select Committee taking up their cause with the regulator.

This past Tuesday (4 February), during the bi-annual evidence session in front of Mr Tyrie’s Treasury Committee, Financial Conduct Authority chief Martin Wheatley was roundly taken to task.

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The committee’s verdict so far? Mark Garnier said the rules, which he estimated had cost in the region of £3bn, had resulted in far fewer advisers servicing a more limited demographic of clients, with less incentive to innovate.

Worse still, while the rules removed the commission that was said to be the cause of insidious bias, the new rules have merely had the effect of encouraging advisers concerned for their financial security to deliberately not disturb portfolios to retain legacy trail.

So while we’re cheering the loss of ‘product bias’, we have ushered in an era plagued by what he termed “commission lag bias”.

Mr Wheatley attempted to stand firm: he provoked a row when he pointed to a modest rise in adviser numbers in the past 12 months since RDR implementation and said the rules had broadly been a success.

I’m inclined to agree with both parties - and as I said in my column earlier today unless Mr Tyrie persuades government to join his cause these dramatic sessions will not achieve much in any case, no matter how fun they are to watch.

The Committee is likely to launch its own review of the RDR in 2015 after the FCA’s year-end two-year implementation review, as part of which it has promised to conduct a full cost/benefit analysis. Mr Wheatley can look forward to more uncomfortable sessions in the hot seat.

Simple advice answers

One of the FCA’s pet solutions to the advice gap cited by the TSC is online simplified advice, but on this too faced a barrage of questions over as to whether consumers could confuse execution-only with advice when using a web-based advice system.

The end result was the axiomatic revelation that advice can indeed be delivered without the need for face-to-face contact, and more importantly that the FCA is to publish guidance on simple advice “in the next quarter”.

For one reason and another that paper is going to prove crucial in the overall scheme of things post-RDR - it will make interesting reading.

‘No cost’ advice

This one had nothing to do with the TSC, but rather relates to our report this week on discretionary manager Westbury Private Clients’ offer to self-invested pension investors that it will refund advice and product fees.