Putting the RDR back on the radar

  • Author : Novia Financial
  • Date : 23 Jul 2019

Plan now drawn up for the FCA’s evaluation

The RDR reforms were a big deal in the retail finance world, and they’ve undoubtedly been very good for both investors and adviser firms. The latter were freed from reliance on initial commissions from product providers, giving them a more powerful position and putting them in a better place to serve the needs of their clients. Novia has been aligned with RDR requirements from launch, and its ethos sits at the heart of our operation, so our ears are pricked up now that the FCA has fully drawn up its plan for a review to evaluate RDR and FAMR. Yes, the FCA is reviewing life post-RDR this year as they promised, albeit with a two-year delay. We thought it worth bringing this up on the radar here as the outcomes of the review will likely be of interest across the industry.

A quick recap

The RDR took effect in 2012 and made significant changes to the way investment products were distributed to retail consumers in the UK. The aim, in the words of the FCA, was to ‘establish a more resilient, effective and attractive retail investment market that consumers had confidence in and trusted’.

In 2015 FAMR was launched jointly by the FCA and HM Treasury with the objective of identifying ways to make the UK’s financial advice market work better for consumers. It looked at the accessibility of advice and guidance available to help consumers with their financial decisions.

With the above regulations in play, the main outcomes of the market review for platforms and advisers were the new distinction between “restricted” and “independent” financial advice (where, in the latter case, an adviser must consider all retail investment products available on the market); a ban on receiving commission from product providers; new rules on the disclosure of adviser charges; changes to the way services are communicated to consumers and the banning of payments by providers to investment platforms as well as cash rebates paid by providers to consumers for new business.

What do the FCA plan to look at?

So here we are amidst the FCA’s 2019 review. They want to evaluate the success of the RDR and FAMR initiatives, and to review their impact on the market to date and assess how the market may develop in the future. As well as a ‘Call for Input’ asking for feedback on its approach and a survey on a small number of adviser firms, the regulatory body have already drawn up a clear picture of key areas they will be looking at, detailed here. To summarise briefly, some of these areas are:

Access to advice and guidance services

They will look at affordability for the different consumer groups and consider how better value for money might be provided. So as expected, the FCA will be looking at the extent to which there is an “advice gap” and how might this be closed. This has been one of the ongoing criticisms: while clients who have the requisite resources to seek advice are surely faring better, it’s said to be more difficult for those less well-off to access the advice that could be important for them. The pension freedoms of 2015 is highlighted as a possible concern here, as it creates a greater need for advice.

Meeting consumer needs for advice and guidance – now and in the future

They are considering consumer needs, both in terms of how well these needs are met now and what the trends for change are going forward from here, and how these needs should be met.  Notably, these trends include demographic change; housing market trends; changes to pension planning; low interest rates and high levels of debt and technological advancements.

The role of regulation

They are considering the role of regulation. Are there any ways in which regulations are counterproductive? How is effective regulation of the area best achieved, including in relation to barriers to competition? They are also considering the impact of recent regulatory changes such as MiFID II, PRIIPs and the IDD.

The report concludes with outcomes and indicators for the RDR and FAMR to measure their success, all of which is also being supported by HM Treasury. For more information see Annex 1 and Annex 3.

The final review is to be published in 2020. We keenly await the results, and will of course aim to remain aligned with the best outcomes for advisers and investors. Watch this space!

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