On the 31st of December, 2012, the introduction of the RDR (Retail Distribution Review) put in place new regulations which force independent financial advisers (IFAs) to take client fees instead of commission payments, in exchange for financial advice.
The incentive behind this move was to encourage and enforce such transparency for the benefit of the consumer, who would now find themselves able to gain truly impartial financial advice from an IFA who was not bound, beholden or obligated to a third party in any way. It’s sound thinking – that IFAs who have no incentives to promote certain financial products will be more likely to promote products which best suit their clients. Unfortunately the chasm which has developed as a result of the commission ruling has meant that increasing numbers of IFAs are now no longer giving advice to consumers who they deem to be commercially unattractive.
What Does the RDR Mean for Consumers?
Stephen Gilchrist was quoted in The Independent as having said, ‘The pressure on advisers to press their clients to invest unwisely may well be eased in the absence of commission.’ This is great news for consumers everywhere, however it comes with a price.
Most affected seem to be those who are over a certain age and looking for advice on pensions, life insurance, inheritance tax planning and other types of ‘later in life’ financial concerns. However it’s been estimated that only 7% of the UK population would be willing to pay up to £200 per hour for professional independent financial advice, which is what IFAs are likely to start charging. But of the 93% who wouldn’t be willing, it’s most likely that the majority simply couldn’t afford it. And with banks set to hike up the costs of their financial advice services in response to the RDR, it almost seems as though high street consumers are being forced out of the financial advice market.
The Effect of Upfront Fees for Financial Advice
The effects of the RDR are already being felt, with only 10% of people who were already thinking about seeking financial advice stating that they would now be more likely to go to an IFA. A third of the public say they would be less likely to go to an independent financial advisor and, despite the implications of the RDR, it’s also the case that about three quarters of the British public haven’t even heard of it.
One clearly positive result of the RDR is, however, that the FSA will now be able to much more clearly identify and highlight those financial companies and independent advisors who are not advised by the FSA itself, which will hopefully reduce the instances of consumers being given misleading or inaccurate financial information.
Consumers who need financial advice are still able to go to one of the many approved financial advice companies, such as YourWealth, who are FSA regulated and offer a wide range of financial service options, including advice on pensions, investment and retirement income.