There has been much written about how the RDR promises to be the biggest shake up that the retail financial industry has seen in decades, and the impact on product providers, financial advisers and most importantly consumers, is likely to be profound. The RDR represents a major regulatory overhaul, aimed to remedy perceived problems currently plaguing the retail element of the financial services industry. Consumer confidence needs to be restored and the FSA needs a successful outcome in order for their reputation to remain intact. The FSA is keen to make this work as a great deal of time and effort has been invested into this by all parties, so implementation 'failure' would be very damaging.
BDO commissioned this research, of IFAs, to better understand how the RDR will play out in practice. We were particularly interested to learn that most advisers will operate post-RDR with adviser charging facilitated by the product provider. To some, this may feel like commission by another name.
Our research shows that the direct benefit to customers may be difficult to find post-RDR. The findings indicate that the cost of advice to the consumer will increase post RDR, which is a deep concern. This will mean the majority of the population could affectively be priced out of the advice market, creating an 'advice gap', with only the most affluent consumers being able to seek financial advice. This would be a major failing on the RDR's part, as a primary goal has been to provide a retail investment market that consumers can have confidence in and trust at a time when they need more help and advice than ever with their retirement and investment planning. However, this projected increase in pricing could simply be a case of over-optimism as advisers 'over egg the commercial planning pudding'; in reality, we expect to see competition and transparency force any overpricing down.
The focus on increased professional standards should lead to greater 'professionalisation' of the advice industry, with a culling of under qualified IFAs leading to better quality advice and an improved level of service overall. However, it will be up to the authorities to enforce that clarity over charging structures remains at the fore, and that consumers are delivered in practice what they have been promised in theory.
From our point of view, one of the most concerning aspects of the RDR highlighted by the survey, was the lack of discussion with clients. A mere 27% of advisers - at the time of taking the survey - had communicated the affects of the RDR on their clients to their clients.
So it remains to be seen if the RDR will in fact deliver the desired consumer benefits, however, at this stage we can only speculate and help our clients prepare themselves for the changes. Much time and effort has been spent detailing the theory, but the crucial time will come when the new system is rolled out commercially.
