The Retail Distribution Review (RDR) delivered significant changes to the Financial Advice market in both positive and negative ways. Since 2012, RDR has been successful in improving the quality of advice received by consumers through increased professionalism of advisors and through increased transparency around how they are remunerated.
However, the unintended consequences of RDR have resulted in many businesses significantly changing their business models and shying away from providing advice due to the increased costs of providing it to consumers and the increased concerns around falling foul of their regulatory obligations.
Whilst businesses have moved away from the advice market, consumers clearly still see benefits in seeking it. Research commissioned by the Financial Conduct Authority (FCA) in 2014 indicated that the move to fee charging had not deterred consumers from seeking advice – which seems counter intuitive given the markets response.
In August, the FCA and the Treasury announced they were undertaking a Market Review examining how financial advice could work better for consumers. Its scope includes:
- the advice gap
- the regulatory or other barriers firms may face in giving advice and how to overcome them
- how to give firms the regulatory clarity and create an environment for them to innovate
- the opportunities and challenges presented by technology to provide cost effective, efficient and user friendly advice services
- how to encourage a healthy demand side for financial advice, including addressing barriers which put consumers off.
It seems that this review will not only look to close the advice gap but will also look to standardise how advice is provided for different products as the review covers; investments, savings, pensions, mortgages, consumer credit and general insurance.
The outputs will include:
- a package of reforms to:
- empower and equip all UK consumers to make effective decisions about their finances
- facilitate the establishment of a broad based market for the provision of financial advice
- create a regulatory environment which give firms the clarity they need to compete and innovate
- a set of principles to govern the operation of financial advice
- measures to ensure standards of behaviour for firms within all types of financial advice markets are in accordance with those principles
- proposals as to whether the regulatory perimeter for financial advice should be amended, taking into account European legislation
- an examination of the role that might be played by regulatory carve-outs (e.g. safe-harbours)
- a consideration of the proportionality of rules and their impact on affordability and availability of financial advice and products
- indications of:
- resources needed for implementation of proposals
- framework for evaluating how successful reforms have been in closing the advice gap.
Given the size, speed and remit of the review it is difficult to assess its potential implications, but many within the financial advice industry hope that it will provide consumers with more options around receiving advice and provide them with the opportunity to give sound financial advice to those who previously could not afford to.
Over the next few weeks we will be gazing into our crystal ball to look at what some of the outcomes of the review might be and provide thoughts on how those impacted may be able to capitalise on any opportunities it provides.