At the regulator’s annual public meeting earlier today (22 July), he said that although firms had generally reacted positively to the RDR, more work was required in this area.
Mr Wheatley also noted several advantages arising from the reforms, including an increase in professionalism and cost transparency.
FTAdviser asked the industry for their views on Mr Wheatley’s comments and to identify where the RDR had fallen short.
Malcolm Kerr, executive director for EY’s financial services division, told FTAdviser that on the upside there are better qualified advisers and an end to any commission bias on investment products, however the downside is that many adviser business models have remuneration dependant on a transaction.
“I think this could create a conflict of interest which may need to be examined - particularly when the fees are facilitated through a product,” he commented, adding that the labelling of advice models may also need some consideration, as restricted whole-of-market models were never part of the plan.
In December, FTAdviser revealed that a consultation by the regulator into advice labels may see such adviser ‘tagging’ being ditched in favour of a more qualitative approach looking at how services are described to consumers.
Mike O’Brien, managing director of Tenetconnect and Tenetselect, pointed out that the FCA has acknowledged the labels of independent and restricted have not worked and have asked for feedback on an alternative approach.
“While the FCA does not acknowledge that there is an advice gap, the position is only going to get worse if the cost of regulation continues to rise at alarming levels, as these costs are eventually factored into the fees charged to customers.
“Tenet and others are arguing that the cost of regulation - or at the very least the FSCS levy - should be funded by way of product levy and that the initial pot could be funded by redirecting some of the fines which have been handed out in recent times.”
Carl Lamb, managing director at Almary Green Investments, agreed that there has certainly been improved professionalism in the industry, although the cost of advice means less and less people are getting independent advice, so the adviser community is shrinking.
“Unless we have joined up thinking, such as the FCA, the [Financial Ombudsman Service] and the adviser market on the same page, then we are going to see a continued shrinkage of advisers as costs increase and ultimately clients have to pay the price as advisers have no choice but to pass the costs on.”
Danny Cox, Chartered financial planner and head of communications at Hargreaves Lansdown, commented that the RDR has helped remove the conflicting issues of the adviser being the agent of the client, but paid by the provider.
“Alongside the RDR, financial advisers continue to evolve to take into account the changing nature and demands of the client, now being more inclined to do some or all of their planning themselves rather than opting for full delegation.
“The market is slowly developing solutions to bridge the gap between DIY and advised, with the pension freedoms have acted as a catalyst here. Whether the introductions of robo-type advice will gain critical mass or not, stability of the rules is desperately needed to allow the market to develop further.”
David Ferguson, chief executive at Nucleus, added that the RDR was only a catalyst for positive changes that were already occurring for commercial reasons.
“While nothing is perfect, I’d say that the RDR has been successful in accelerating the modernisation of our market and that’s obviously a good thing, even if it doesn’t suit some of the more traditional market participants.”
At the end of last year the FCA published the first part of its post-RDR implementation review work, a report by Europe Economics, which drew similar conclusions.
It found that there was no clear evidence yet that consumers have benefited from the RDR, despite the new regime apparently meeting its objectives in relation to professionalism and supply-side cost pressures.
It also found that the removal of commission paid by providers had reduced product bias in advisers’ recommendations, along with making it easier for consumers and advisers to compare platforms.
The fact that the reports into its effectiveness cost approximately £200,000 predictably did not go down well with the advisory community.
The next stage of the RDR review comes in the form of another report in 2017, to be followed by a third review into the long term effects of RDR at a later date.
peter.walker@ft.com
