Opinion  

FCA admits RDR made advice too expensive

Emma Ann Hughes

Emma Ann Hughes

The City watchdog has admitted regulation is to blame for depriving the mass market of affordable advice.

Speaking to the public accounts committee earlier this week the acting chief executive of the FCA Tracey McDermott acknowledged the Retail Distribution Review led to banks leaving the sector, making it harder for the less-affluent to seek advice.

Yes regulation - not greed - has pushed the price tag of financial advice so high and making recommendations so risky even the banks don’t want to offer it.

Ms McDermott said: “The tied advisers that used to be within banks - those sales forces have shrunk massively, a lot of them were closed down partly as a result of the Retail Distribution Review and also because the banks realised they weren’t able to control them properly.

“We have started to see those sales forces be reintroduced. Charles [Roxburgh, the director general for financial services at HM Treasury] and I co-chair the Financial Advice Market Review because on the downsides of those people being taken off the road is that if you are not affluent getting access to some sort of support and guidance is much harder.

“We would like them to be reintroduced but we would like them to be reintroduced in a way where they are actually clear as to whether they are giving advice, whether they are selling to you and making sure there are appropriate controls around the way that the products are sold and the way the advisers are remunerated. It needs to be done cautiously and carefully.”

Guidance is rubbish isn’t it? Basically it is information. What people want is advice.

I think it is time to admit that the Financial Advice Market Review should really be known as “the review that was really needed at the same time as the Retail Distribution Review.”

RDR has many positive features but it was brought in with little thought or analysis as to what would be the wider repercussions of banning commission and requiring anyone who wished to call themselves an adviser being highly qualified and committed to continuous professional development.

Everyone working in this industry knew RDR would shrink the size of the financial adviser community. The truth is the FCA’s predecessor, the Financial Services Authority, did not listen to these concerns and pushed on in their belief qualifications and ditching commission would right all the wrongs of this world.

With pension freedom throwing open Pandora’s Box advisers are needed more than they ever have been and it is disgraceful that regulation has dwindled supply rather than strengthened it.

On 16 March, I hope the Budget delivers the outcome of the Financial Advice Market Review that we all want.

What was needed alongside RDR was a regulatory dividend. A regulatory regime that means because you are highly qualified and unquestionably not pushing the product that earns you the most commission you should not be liable for every recommendation you make until the day you die.