The RDR was revolutionary, but 10 years on it’s time for a rethink

After what felt like years in the making, the Retail Distribution Review went live.

Advisers were busy making sure their qualifications met the new higher minimum standards, but the biggest change was the ban on commission for investment products and the move to a more transparent fee-based adviser charging.

Where providers offered it, clients could instruct them to deduct an adviser charge from their product, avoiding ‘writing a cheque’ and offering tax efficiencies for pensions.

The RDR did successfully deliver on two key aims.

The cross-industry requirement for Level 4 minimum qualifications heralded a levelling up of professionalism.

More transparent adviser charges and the elimination of concerns over commission bias also made real inroads into improving trust in the advice profession.

But the biggest downside of the RDR, which had been widely predicted, was an increase in the advice gap.

I have been contributing to work led by Tisa, which has been designing a proposed "more personalised guidance" regime.

While the Financial Conduct Authority found only limited evidence of this in its 2014 post-implementation review, anecdotally, the general industry view was those with less to invest were often no longer viable to advisers because the inherent cross-subsidy within commission had gone.

The joint Treasury/FCA Financial Advice Market Review with its hard to pronounce FAMR acronym followed in August 2015, charged with closing the advice gap in its widest sense.

It produced 28 wide-ranging recommendations across three key areas, looking at affordability and accessibility of advice as well as sustainability of adviser firms. Even pension dashboards got a mention.

Rolling forward till 2020, the post-implementation review of RDR and FAMR found a lack of support for customers with more than £10,000 in cash who might benefit from investing excess cash for growth.

Another finding was a reluctance from firms to develop "more tailored guidance" because it might be classed as advice. The review also referenced that the EU-derived regulatory regime might not help here.

Which brings us, 10 years on from RDR, to some proposed new initiatives to better support customers.

A more personalised form of guidance could further empower firms to deliver the good outcomes the new consumer duty is aiming for.

The all-encompassing new consumer duty’s focus on delivering good outcomes includes demonstrating the value of retail customer products and services, including a focus on ongoing advice charges.

Alongside this, the FCA is consulting on a limited core investment advice service, which would allow firms, regulated to give advice, to offer a streamlined advice service to support clients moving excess cash into stocks and shares Isas.

Both the investments within such Isas and the service itself will need to meet the many requirements of the new consumer duty – so careful navigation will be required.

In addition, the FCA has committed to a holistic review of the advice/guidance boundary. With the UK no longer bound by EU regulations, there’s the opportunity to move away from the Mifid definition of advice. 

I have been contributing to work led by The Investment and Savings Alliance, which has been designing a proposed "more personalised guidance" regime.

This would be offered only by FCA-regulated firms but unlike current guidance would be allowed to take into account some personal attributes of the individual, without that automatically being deemed advice.

This could complement advice, offering more limited but very valuable support to lower wealth individuals in areas such as stocks and shares Isas, adequacy of workplace pension contributions and considering investment fund choices. 

Encouragingly, an amendment to the financial services and markets bill recently proposed by MP Harriett Baldwin to introduce a personalised guidance regime gained cross-party political support.

While this won’t appear in the act, MP Andrew Griffith, economic secretary to the Treasury, indicated this would be explored alongside the review of the advice/guidance boundary.

The RDR was quite revolutionary for its time, and fortunately the advice industry has gone from strength to strength. But 10 years on it’s time for another rethink. It’s imperative that current successful advisory models continue to thrive.

But alongside these, for those firms who want to offer new services to currently unreachable client groups, a more personalised form of guidance could further empower firms to deliver the good outcomes the new consumer duty is aiming for.

Steven Cameron is pensions director at Aegon