16th December 2014
Reforms to the financial advice market have had a positive impact, but 35% of firms are still failing to disclose ongoing costs, a review has found.
A report by Europe Economics into the impact of the Retail Distribution Review (RDR), which came into force in December 2012, has found that the removal of commission payments to advisers has reduced bias, as there has been a decline in sales of those products that paid the highest commissions pre-RDR and an increase in sales of those that paid little or no commission.
The report, commissioned by the Financial Conduct Authority, said that product costs had reduced substantially, but that adviser charges had remained broadly the same.
However, worryingly, the report found that 35% of firms fail to disclose the total charges for ongoing advice they provide.
Furthermore, of the firms using hourly rates within their charging structure, 57% did not provide an approximation of how long each service was likely to take.
One firm has been referred to enforcement. It was felt that they had not sufficiently engaged with the changes required by the RDR.
Martin Wheatley, chief executive of the Financial Conduct Authority (FCA), said: “The RDR aimed to create a truly professional financial advice sector; one that provides advice based solely on investors’ best interests. It is still early days but the indications are that the sector has responded positively to the reforms.
“Importantly, we have seen a reduction in product bias, with a very noticeable decline in the sales of those products that before RDR came with higher commission.
“These are positive signs but we know there is more to do. For example, early next year we’ll be looking at how we might encourage better disclosure of information to consumers. And, in 2017 we’ll undertake a further review of how the RDR has worked. It is vital that we continue to keep these wide-ranging reforms under review.”