In its latest paper on the impact of the Retail Distribution Review and the Financial Advice Market Review, published on May 1, the Financial Conduct Authority called for industry's input on the role of regulation, admitting some of its rules may harm advisers and their clients.
The FCA said: “While regulatory costs can be seen as the cost of doing business well, we are also aware that our actions can have a negative impact on the market and, by extension, on consumers.”
The City watchdog also asked if any barriers to effective competition existed in the advice market and what barriers might be preventing advice and guidance services becoming more affordable, and gave a deadline of June 3 for initial feedback, with a view to publishing its final report in 2020.
There have been claims and counterclaims about whether the RDR limited access to financial advice, but the reality is more complicated.
Unintended consequences
The RDR was launched by the FCA’s predecessor, the Financial Services Authority, in 2006, though most of the rules it introduced took effect in 2012, which aimed to establish a more resilient, effective and attractive retail investment market in which consumers could trust.
Indeed, the RDR made several significant changes in the way investment products were distributed to UK retail consumers; it raised the minimum level of adviser qualifications, changed how charges and services were disclosed to consumers, and banned the use of commission to pay for financial advice.
In a statement published on May 1, Christopher Woolard, executive director of strategy and competition at the FCA, said: “Consumers and the market are changing rapidly, as technology, employment patterns and intergenerational challenges change the way consumers interact with financial services.
“As well as looking at how the market has evolved since RDR and FAMR, it’s important that our work looks ahead to see how we ensure that this important sector works well in the future.”
Indeed, at the heart of RDR was the overriding need to increase consumer confidence in the financial services industry, and very few would contest that this did not need to be addressed, says Verona Kenny, head of the intermediary at Seven Investment Management.
She says: “The high-level principles and impacts of RDR were relevant and impactful, but as with any sweeping changes of an industry, it is the unintended consequences which have become the focus.”
She continues: “Overall, the financial services industry needs to find solutions to these unintended consequences.
“RDR was the regulator’s answer to shortcomings of our industry. For me, innovation is the key response we need to have to ensure that all clients have access to the financial services they need.”
Access to advice
While the RDR and FAMR have been successful as the underlying suitability of the advice being provided across the industry has greatly improved, the industry must do more to democratise advice, notes Simon Cowley, Wealth Management Consultant at Walker Crips Wealth Management.
He says an unintended consequence of the RDR and FAMR has been a reduction in available advisers and increased costs to clients, consequently limiting people’s access to advice.
