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Clients’ interests will be harmed by RDR, say financial advisers



Forty-six per cent of financial advisers that recently completed a Blue & Green Tomorrow survey reported that the retail distribution review (RDR) will harm the interests of their clients. Meanwhile, just over a quarter (27%) saw a benefit for clients with the same number seeing neither harm nor benefit.

Every year, B&GT conducts research to assess the state of financial advice. Few people feel confident to invest without professional assistance and our research assesses whether advisers are receiving more or less enquiries, as well as their views on the economy and regulatory environment. We are also able to track the demand for ethical investment advice.

While the survey covers many topics, of interest to investors will be the commonly held view amongst advisers that more of them will be priced out of the advice market. The RDR changes the system of remuneration for advisers, moving from commission on products sold to fee-based advice.

One of the regular refrains in financial marketing was that to increase sales of a product you simply needed to increase the commission paid to advisers. The RDR was designed to address this.

This ‘advice gap’ represents a challenge for less affluent investors who, without advice, may be tempted to purchase from a narrower range of off-the-shelf products from high street banks that might not meet their goals or fit their values.

Those seeing benefits for clients focused on the greater transparency that fee-based advice provided and avoided the charge that advisers recommended the products that paid the greatest commission.

Conversely, over two-fifths (42%) of advisers saw a benefit for their firm from the RDR, whereas just under two-fifths (36%) saw harm. The main benefit to adviser firms was cleaning up the profession and the main harm was the bureaucracy it has created, with some firms being driven out of business.

Fidelity report that up to 43 million people could be priced out of advice. Its research found that only 14%, or 7 million people, would be willing to pay a fee. While the headline is dramatic, this figure is in line with the decline of those seeking financial advice over the last few years.

Accurate figures on those using or paying for advice are hard to come by. Research by JP Morgan in May 2011 indicated that only 5% of people pay for financial advice with an additional 3% willing to pay for advice in the future. A study by Aviva in June 2011 indicated that 20% of people use an IFA.

On that basis, 14% could represent an increase or decrease in those willing to pay for advice.

Rather than only 14% of people being willing to pay for advice, the reality has always been that 80% of the population would never pay for advice and we do not yet know the effect of the RDR of those that do.

Further reading:

Financial advice industry ‘a long way from making things better’, as banks unveil charges

Investors will have to resort to execution-only services with RDR changes

Investors won’t get ethical solutions from most banks, so RDR is a double whammy

Simon Leadbetter is the founder and publisher of Blue & Green Tomorrow. He has held senior roles at Northcliffe, The Daily Telegraph, Santander, Barclaycard, AXA, Prudential and Fidelity. In 2004, he founded a marketing agency that worked amongst others with The Guardian, Vodafone, E.On and Liverpool Victoria. He sold this agency in 2006 and as Chief Marketing Officer for two VC-backed start-ups launched the online platform Cleantech Intelligence (which underpinned the The Guardian’s Cleantech 100) and StrategyEye Cleantech. Most recently, he was Marketing Director of Emap, the UK’s largest B2B publisher, and the founder of Blue & Green Communications Limited.