Regulation  

10 key takeaways from the FCA’s RDR review

Europe Economics’ final ‘phase 1’ report on the impacts of the Retail Distribution Review presents a very positive review of progress thus far with RDR. Below we list the 10 key points from the report.

1. Advisers are becoming more qualified.

Adviser research, carried out by RS Consulting, shows that in 2010, 22 per cent of advisers did not have an appropriate level four qualification, whilst another 29 per cent had just started studying for one.

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By 2012, around 96 per cent of advisers held or were studying to hold a level 4 qualification. Now, there is an increasing trend in the attainment of Level 6 qualifications – chartered or certified status – alongside an uptake in membership of professional bodies.

2. Little evidence of change in trust levels.

The Omnibus Survey conducted for the FCA found that 36 per cent (an increase of 2 per cent in the last four years) disagreed either slightly or strongly that financial advisers make recommendations based on the best interests of their clients.

Despite this, the report claims “indirect indications” that consumer engagement may have increased.

3. Consumer confusion on charges remains.

Maybe unsurprisingly, the report found that there is still confusion among consumers regarding adviser charging and the limitations in understanding of how, and how much, they are paying for advice.

The findings suggest that although consumers’ understanding may increase as clarity improves, other facts, such as the differences in charging structures and the search costs incurred by consumers on obtaining price information, are likely to continue to confuse consumers.

Europe Economics states: “Our fieldwork indicates that many advisers use a charging structure based on a percentage of investment – and which is contingent on the investment being made – which may drive some of this confusion, as the end result to consumers is likely to appear very similar to a commission structure.”

4. Lack of clarity between ‘restricted’ and ‘independent’.

Despite the fact disclosure of information by firms to consumers in relation to the nature of the advice they offer, a significant proportion of consumers still don’t fully understand the difference between restricted and independent advice. Consumers often assume the advice they have received is independent.

This follows the FCA saying in July 2013 that firms are not being clear about what proposition they are offering clients, and at that time the regulator said intermediaries must use the terms ‘restricted advice’ or ‘independent advice’ in describing their service to clients.

It is now considering ditching this altogether and going instead of a system based more on explaining the services offered.

5. Consumers prefer advice when they have £20,000 to invest.

The findings also reveal that consumers prefer advice when they have £20,000 or more to invest and they tend to prefer full, holistic advice with about £50,000 or more to invest. As the complexity of the investment grows, the consumer is more likely to seek advice.

Barnett Waddingham published data earlier this month which said that people were extremely unlikely to pay for a financial adviser until they earn more than £50,000 a year.