‘Long-term impact of RDR will be positive’

Simon Cowley, wealth management consultant at Walker Crips Wealth Management, says “[neverthless] the long-term impact of the RDR will be positive, as the teething problems of the dramatic change placed within the industry are starting to smooth out”.

While tightening of regulation was needed, he admits the RDR has led to “a difficult balancing act for advisers to provide a cost-effective service for their clients, while also satisfying their increasing regulatory obligations”.

He adds: “Ultimately, this has resulted in access to advice becoming a preserve of those who are already wealthy.”

As well as restricting access to advice, a delayed impact of the RDR could be that up to one in five financial advisers leave the industry in the next five years, according to a recent industry report.

Despite this, the longer-term impact on the industry is likely to be more positive, with technology increasing efficiency and driving down costs, reiterates Mr Cowley.

He says: “Things may change in future years when technology catches up with the regulatory process and robo-advisers become a more integrated part of the industry.”

Improving access to advice

Since its implementation in 2013, the RDR has transformed the financial advice industry.

Indeed, according to Gemma Harle, managing director of Intrinsic’s financial planning and the mortgage network, it has achieved its goal of increasing transparency, fairness and professionalism of the sector.

She adds: “The clients' experience has been greatly improved after the RDR removed the link between advisers and commission and promoted a more service-oriented industry.”

But if the RDR is to prove successful in the long-term, improving consumer access to advice will be paramount.

According to the Financial Conduct Authority’s financial lives survey, 6 per cent of consumers received regulated financial advice in a 12 month period, but an additional 25 per cent of consumers did not get advice but may have benefitted from it, notes Dr Matthew Connell, director of policy and public affairs for the Personal Finance Society.

Mr Connell also points to separate research by FCA in 2017, which showed 93 per cent of advice given by the sector is clearly suitable and suggests while the quality of advice is very high, the greatest challenge is to build capacity in the advice sector to meet the need for regulated advice.

He adds: “While transparency is important, promoting the benefits for advice will bring about better outcomes for consumers than inventing new forms of cost disclosure.”

While raising advisers qualifications was necessary, there is no doubt the RDR has also hampered the wider public’s access to advice, as the higher standards and tightened regulation has driven up advice costs throughout the industry, adds Mr Cowley.

He explains: “The number of advisers has significantly reduced since the introduction of the RDR which in turn has reduced the number of consumers looking to access advice.

“Although the value of advice can be enormous, sometimes it is difficult for consumers to look past costs, especially on difficult cases that require a lot of work.”

He continues: “A consumer needs to feel the adviser does not just sound like they know what they are talking about, but that they have the qualifications to prove it.”

“They will look for someone who they trust or feel they can build trust with, with the knowledge and expertise that can help them achieve their objective.”

He adds: “The changes the RDR has introduced has broadly improved advisers' ability to satisfy these requirements.”

Changing the perception of advisers

After a period of pain in the immediate aftermath of the introduction of the RDR, the advice industry has come out stronger, and will continue to grow from strength to strength, suggests Verona Kenny, head of intermediary at Seven Investment Management.

She also suggests this has already had a positive impact on improving the public’s perception of advisers.

“One of the key goals of the RDR was to ensure there was more transparency in the industry and with the introduction of adviser charging in place of bundled charging and commission, clients now have a much clearer understanding of what they are paying their adviser and therefore the value they are delivering,” she explains.

“The industry is more transparent and is better qualified than perhaps ever before making it easier for advisers to justify the fees they charge.”

She adds: “There is, of course, more work to be done but there has been huge progress and this is encouraging to see.”

Similarly, Mr Connell explains that because the RDR has made the process more transparent and facilitated more detailed conversations about how advisers are being paid, it has reassured clients they are doing business with a professional firm. 

He adds: “And, for those consumers who are doing business with advisers, has contributed to an improved perception of advisers.”

However, according to Mr Cowley, charging post-RDR initially did not improve consumers’ perception of advisers, as it shed light on the 'commission' they were paying.

He explains: “With this cost transparency, some consumers had little understanding of why they were being charged ongoing commissions which caused friction between them and their advisers.

“However, consumers are now starting to understand the reasons behind the costs and the trust has gradually been re-built over the past ten years, and will hopefully improve even further in the future.”

victoria.ticha@ft.com