The Committee’s 16 July report criticises two key elements of RDR: the proposed timing of its implementation and the changeover to higher qualifications for advisers. It believes the 2013 deadline will potentially force many advisers out of the market, which the Committee feels is harmful to consumers.
The Committee has fears over the FSA’s stance that grandfathering on qualifications for advisers who have been in the market for decades not be allowed. It recommends less of a cliff-edge deadline for qualifications, preferring a more sloped approach.
“We are concerned at any potential loss of competent and experienced advisers from the market. In an effort to achieve the legitimate aim of maintaining competition and choice in the advice market, we recommend that the FSA consider instituting a process whereby it provides for flexibility for advisers on a case-by-case basis.”
The Treasury Committee also notes that at some point the FSA (or its replacement, the Financial Conduct Authority (FCA)) will likely move the bar higher on qualifications, up to Level 6, equivalent to a degree.
With regards to the banning of commission, the Committee is largely in support. It does have some concerns consumers won’t pay for advice. However, it says the system could lead to better scrutiny of the advice they are paying for, which given mis-selling episodes of the past, is a welcome development.
While also broadly accepting of the removal of trail, the Committee suggests the FSA better analyse the impact this could have on the advice market, particularly small-firm IFAs.
VAT is a crucial issue that has yet to be resolved, the report notes. It calls on the HMRC, in conjunction with the FSA, to report to the Committee as soon as possible with clear guidance on when VAT is payable for advice under RDR. “The FSA should report to us on whether this imposition of VAT will have an impact on the provision of advice, and whether an unfair tax advantage between different advice models will result from the move to the RDR.”
Level playing field
As RDR affects more than just IFAs, the Committee examined evidence from AIFA that there is the potential for banks and provider sales forces to still receive product incentives. The Committee says it would “be extremely concerned” if banks found ways to skirt the rules. It recommends the FSA (or FCA) report yearly on the impact of RDR in such firms, indicating breaches and possible remedies. “Only with such transparency will the IFA community be persuadable that it has not been unfairly impacted by the implementation of the RDR.”
The Treasury Select Committee asks the FSA devote “significant resources” to explaining to the public the concept of ‘restricted’ advice.
It wants the FSA to continue its work towards simplified advice. However, it wants the authority to report to it on the progress of this project and once it is in place, update them on how implementation affects consumer outcomes.
The Committee wants evidence, post RDR’s implementation, on the continuation of trail commission and churn. It wants the FSA to determine whether pre-implementation churn or post-RDR holding of clients have been the best solution for clients.
Regular reports on the impact of the RDR on adviser levels, and savings through independent financial advice, should be compiled by the FSA and its successor.