Simplification is the key - Centre for Policy Studies

provider influence, thereby improving the prospect of advisers acting in their
clients’ interests, but does not address the fundamental problem that a one-off
payment for advice (an alternative to factoring) can put people off seeking it;
(iii)
imposing blanket requirements on qualifications (QCA Level 4 will become the
benchmark), with no grandfathering (even if an IFA has many years of
experience).
The RDR is expected to improve professionalism and public trust in the industry, but it
leaves behind a generation harnessed with moribund, over-priced retirement savings
products 96 and does little to help modest savers. The RDR is also unlikely to change the
reality that banks currently do not want the costs and risks associated with retail
distribution of, and giving advice for, long-term savings products.
When fashioning the RDR, the FSA tried to come up with proposals that will improve both
the quality and quantity of financial advice available to consumers. 97 “Quality” has
probably been addressed successfully and there will almost be clear blue water
between “independent” and “restricted” advice; as for “quantity”, the RDR is set to fail.
4.8 Consequences of the RDR
Some industry estimates suggest that up to 30% of the 30,000 IFAs are expected to
leave the sector upon RDR implementation, 98 making end-2012 a “cliff edge” date, both
for those within the industry and their (typically elderly) clients, who will then be without
an IFA relationship.
One reason for these unintended consequences appears to be the FSA’s misconception
of what an IFA’s role really is. Today many IFA’s offer advice as a gateway to sales
commission rather than as a service in its own right. If following the RDR the IFA is
required to give higher quality advice and to charge the customer for it directly, then
many customers who cannot afford this will drop out of the market or choose to buy
simple products direct from banks and other distributors. As a result, the number of
advisors is likely to drop, and the population they serve (and encourage to take on
pension and other savings contracts) will decline.
Indeed, it will accelerate a trend that has already developed; in ten years time there may
be only a few thousand genuine advice-giving IFAs left. They will be focused on the
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97
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Such as FSAVCs with no access to a 25% tax-free lump sum at SPA.
Objectives laid out by Sir Callum McCarthy, FS Chairman, in a 2006 speech at Gleneagles.
A further 15,000 tied or multi-tied advisers are estimated to operate within banks.
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