Ten years on: Has RDR been a success?

The RDR regulation included a requirement for advisers to raise their knowledge levels from the benchmark Qualifications and Credit Framework (QCF) Level 3 qualification, commonly the Financial Planning Certificate (FPC) or Certificate in Financial Planning, to a Level 4 Diploma qualification. 

The new requirements saw an increase in professionalism across the industry, according to Tim Morris, IFA at Russell & Co Financial Advisers.

However, he said: “A major downside is the advice gap widening as more people have been priced out of advice. 

“I like the simplified advice proposals, at least in principle, because they should encourage more people to access advice. 

“For me, it would be great to see a scheme for financial advice similar to that of legal aid. Although I do appreciate it would be challenging to agree funding. Mainly due to a lower perceived level of urgency from the government and general public.”

Likewise, Imran Rafiq, IFA at Cartier Wealth said one drawback of RDR was that it “brought about a division in inclusivity”, making advice unaffordable for people on a low income or those with low-value investments as firms aggressively focused on building AUM.  

“When I set up my business, I was clear that I wanted to charge fair fees, based on the value I provided and not the assets accumulated,” he said. 

“While this is cost-effective for clients with large assets, the fees can appear daunting for somebody on the first steps into their financial planning journey.”

Darren Cooke, chartered financial planner at Red Circle Financial Planning also agreed that RDR has seen the rise of the term 'the advice gap'. 

But he said this gap always existed. “There were always cases where the remuneration, through commission, did not cover the work actually done. 

“The difference now is that cost is largely borne by the client and by means of an upfront payment to the adviser. 

Chartered should replace Diploma as the standard to advise. Kusal Ariyawansa, Appleton Gerrard Private Wealth Management

“Where clients can afford monthly payments to a pension, for example, but not a lump sum, commission did cover that gap by spreading the cost over many months and allow those clients to access advice.”

Cooke explained that those with smaller amounts to invest were never really profitable to advise anyway, pre or post RDR. 

“Better solutions need to be available for them,” he said. “Again I'm not convinced the simplified advice proposals are the answer and they are 10 years too late anyway. “

Elsewhere, Kusal Ariyawansa, chartered financial planner at Appleton Gerrard Private Wealth Management, said the minimum qualification level saw the “demise of the traditional adviser”, referring to those who lacked exam skill yet possessed considerable interpersonal skills.

Ariyawansa explained that this created a mindset to move away from a “sales-based, target-driven environment” to an advisory-lead profession.

“The increased qualifications, knowledge and embracement of financial planning has seen the evolution of the ongoing advice model, enabling firms and its constituents to become more recession-proof,” he said.

However, he added: “There is a strong belief that the RDR has created an advice gap. This is a complete myth as the evolution of the internet, MAS, and social media channels mean 'advice' is freely available and accessible faster than it has ever been before.

“One danger with this is the clouding of advice and guidance and I am happy the FCA insists advice must be accountable, culminating in a personalised recommendation.”

 It now takes longer to get into the profession than before so aspiring advisers have to factor in time, and cost...before they can start. Darren Cooke, Red Circle Financial Planning

Ariyawansa said guidance is “mostly fluff” and this clouding encourages a significant number to believe that advice is “easy” and “should not cost more than a few bob”.

“Cost is the main objection, I find, when proposing a full financial plan for those who are cash rich yet asset poor,” he said. 

He explained that another key danger is the emergence of the unregulated “advice-only” planner who purports to be better than advisers merely because they cannot recommend and implement a particular strategy using a product.

“It’s about as pointless as a doctor saying you have an infection needing antibiotics, yet cannot recommend which one to take, leaving the choice to you,” he said.

A qualified success

Felix Milton, chartered financial planner at Philip J Milton & Company described the post RDR reforms as positive in that fee transparency is now generally much fairer for clients and those seeking advice understand what they are paying for.

“That said, the FCA still has not worked out how to make full advice possible to those with fewer assets where typically the commission remuneration model worked for those individuals,” he said.

“I hope the FCA comes up with a plan as typically those with a lower amount of assets are those who could see the greatest benefit from financial advice.”

Meanwhile, Cooke said RDR has been “a qualified success” and has generally raised standards across the profession. 

All advisers are now qualified to a higher minimum standard and more than ever have gone on to take higher qualifications which he said “can only be a good thing”.

Yet, he said: “The downside to that is it now takes longer to get into the profession than before so aspiring advisers have to factor in time, and cost, to qualify before they can start. 

“Moving away from commission has also been a positive. A provider shouldn't be selected on the back of who pays the most to the adviser anymore, or who has the current special deal. It has also made the churning of bonds, that used to happen in the past, irrelevant. 

“Again, this improves the outcomes for clients.”

Cooke explained that this means that adviser earnings are more geared towards the ongoing fees than before. 

 Changes in regulation are not something the adviser community has shied away from... good firms are always ready to embrace positive change Imran Rafiq, Cartier Wealth

“This in turn has driven the behaviours of firms, and advisers, to focus on the service they provide to their clients away from the one-off sales process to building longer term, service based, relationships with clients,” he said. 

Where it has failed is the rise of the restricted and vertically-integrated firms and networks, often offering poorer quality products with higher charges, he argued. 

“I would include many of the robo services in this as well. In general, they actually offer very little for their charges and often do not deliver outcomes as good as they should be.” 

Advice firms needs to do better

With RDR’s 10-year anniversary and the introduction of consumer duty, Ariyawansa said advisers need to think about being even better.

“Chartered should replace Diploma as the standard to advise”, he said.

“The regulator and all authorities should actively promote the value of advice and financial planning over cheap online gimmicks and influencers. Advisers should unite together as a profession (be it restricted or independent) for the betterment of the public.” 

Elsewhere, Rafiq described it as “an understatement” to say that RDR has reshaped financial services.

 RDR was inevitable, mainstream media was rife with stories of poor advice, and events such as endowment mis-selling. Imran Rafiq, Cartier Wealth

“I recall joining the sector shortly after graduating from university; within two years I was a qualified adviser, with no practical experience, I remember feeling a little embarrassed by telling others what I did for a living,” he said.

Working with a large network, he said although the culture wasn’t exactly the Wolf of Wall Street, “there was a bravado on who generated the most commissions”.

He explained that at that time, some of the life offices were shedding their distribution arms and the networks were picking up advisers for fun.

“Some advisers were old-school door-to-door sales people who later would establish credible firms,” he said.

“RDR was inevitable, mainstream media was rife with stories of poor advice, and events such as endowment mis-selling.

“I recall that during the dotcom bubble, the phone lines were suddenly very busy and some advisers struggled to explain why their clients had experienced a fall in their investment valuations, underlining a lack of understanding.”

He added: “As RDR approached, there was a scurry to pass the exams, it was a worrying time for many advisers who were genuinely concerned about their livelihood, those who did not succeed, left the industry, or filtered into alternative roles, others, caught up later.” 

Rafiq described it as “a new era” where advisers were now faced with the challenge of asking clients for a fee.

He said the lightbulb moment for many advisers was not how they were remunerated for their service, it was the important relationships around trust they built with their clients.

“RDR enabled good advisers to transition into credible and professional firms on par with accountants and solicitors, with many advisers pushing toward Chartered status,” he said. 

“The retail distribution review can take some credit for the journey of self-recognition and self-development. Firms have become more client-focused, with a shift from product-driven advice to goals-based, lifestyle financial planning and understanding consumer behaviour.”

With the consumer duty round the corner, Rafiq said advisers are well prepared for it.

“Changes in regulation are not something the adviser community has shied away from; in fact, good firms are always ready to embrace positive change,” he added. 

“At the pace of technological innovation, and a client-engaged, outcomes-focused sector, the future looks promising.”

sonia.rach@ft.com 

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