Earlier this month, the Financial Conduct Authority announced that it was planning to review the financial advice market.
The review will look at how the market has changed since the Retail Distribution Review (RDR) and the Financial Advice Market Review (FAMR) were introduced, and consider whether the initiatives have been successful in achieving their objectives.
It will cover:
- What consumers want from the market
- How the market currently works to deliver this
- How advice and guidance services might be impacted in future by new market trends and developments
What were the RDR and FAMR meant to achieve?
The RDR was launched by the FCA’s predecessor, the Financial Services Authority, in 2006; most of its rules took effect in 2012.
In the words of the FCA, it aimed to ‘establish a more resilient, effective and attractive retail investment market that consumers had confidence in and trusted’.
Among the changes it introduced were increased requirements around adviser qualifications, changes to the ways charges and services were disclosed to customers, and a ban on the use of commission to pay for advice.
The FAMR followed in 2015. It was intended to ‘identify ways to make the UK’s financial advice market work better for consumers’. It examined the accessibility of advice and guidance available to help consumers with their financial decisions.
The review concluded with a final report, issued in 2016, which included a series of recommendations for the FCA, HM Treasury and other organisations. The FCA also published a set of indicators in June 2017 to use as a baseline to track changes in advice over time.
What did advisers think of the changes?
Money Marketing, reporting on the latest FCA activity, said that ‘During the six-year-long gap between when the RDR kicked off and when reforms came into effect… a significant proportion of advisers felt uneasy’.
The Review introduced changes to the qualifications and ongoing professional development advisers needed to undertake, as well as bringing in rules around fee transparency and commissions that demanded an overhaul in some firms’ models.
Today, though, the article claims that ‘you’d struggle to find more than a handful of advisers who would fight to reverse it’ – advice firms have, it says, seen ‘surges in demand, revenues and profits’.
It also claims that, as a result of the RDR and FAMR, research suggests that product bias has reduced, consumers shop around a little more and there has been an increase in adviser numbers.
It’s not all good news, though, as the FCA noted when launching the review: “We have some concerns that, in parts of the market, there may be problems with conflicts of interest, poor treatment of consumers and misleading or confusing communications.”
Adapting to a changing market
Launching a Call for Input, asking for views on the review, Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said that the original RDR and FAMR were intended ‘to help the market develop the right advice or guidance service consumers need to make [financial] decisions’.
Now, with consumers and markets rapidly changing, due to a combination of technology, employment patterns and what Woolard calls ‘inter-generational challenges’, the ways consumers interact with financial services are changing.
And of course, this change is ongoing. Any review needs to look forward, to identify potential future trends and ensure that the financial sector continues to work in years to come – to meet Woolard’s stated aim of a market that delivers ‘a range of good quality, affordable advice and guidance services that meet consumer needs.’
The new review will assess the impact to date of the RDR and FAMR and look at how consumer needs may evolve in future.
What happens next?
You can give feedback to the FCA on the Call for Input until 3 June 2019, via the online form, by writing to:
Retail Distribution Policy
Strategy & Competition
Financial Conduct Authority
12 Endeavour Square
London E20 1JN
Or by emailing: RDR-FAMR-ReviewCfI@fca.org.uk.
Although the Call for Input closes on 3 June, this doesn’t mark the end of the FCA’s data-gathering.
A series of stakeholder events will take place during June and July (you can find our more or sign up on the FCA website).
The regulator also plans to collect further data through consumer research and by surveying a sample of firms. It intends to publish its final report in 2020.
Ensure your financial advice is up to scratch
The RDR and FAMR – and the new review into their effectiveness – were designed to improve the quality of advice for consumers. Putting in place a culture where good governance is the norm is crucial to this.
How can we help?