RDR: The state of UK financial advice

30th January 2012

A recent survey of 700 advisers by Panacea IFA suggests that the move may restrict access to financial advice, with many currently advised clients already decided that they will go solo or return to the high street banks to avoid higher costs for advice.

The goals of the new system are outlined here, but can be summarised into three main areas. The new rules aim to ensure that

1) consumers are offered a transparent and fair charging system for the advice they receive

2) consumers are clear about the service they receive

3) consumers receive advice from highly respected professionals.

In most cases, this means that advisers have to switch from a commission-basis to a fee-basis. Previously advisers were paid by a commission from product providers when they recommended one of their products. It meant that the end client saw no direct charge, but it led to accusations of bias. It also meant that it was not viable to recommend certain products, such as investment trusts because there was no mechanism to pay commission.

The RDR seeks to address this and, as such, these are worthy intentions, but the Panacea survey suggests that, in fact, adviser clients are perhaps not as grateful as the FSA had hoped. Some of the feedback from advisers suggests that some clients would prefer to continue to pay commission. For example: "95% of my clients would prefer the commission option", "My clients do not understand why they cannot have the choice of paying a fee, an hourly rate or paying on a commission basis"

More worrying, the survey suggests that advised clients are now going back to the banks (which have been the source of many of the mis-selling scandals): "Many say they won't do it and will simply go back to the banks where advice will be restricted – they will have reduced choice."

The other view reflected in the survey is that clients will simply do away with advice all together. One adviser comments: "Two of my top three clients have decided they can "do it themselves"

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