The Financial Conduct Authority’s (FCA) review of the retail distribution review (RDR) will look at the ‘cost of advice’, the regulator has told New Model Adviser®.
Next year the FCA will carry out a review of RDR which will be combined with a planned analysis of the financial advice market review (FAMR). The regulator has also indicated it is considering an advice fee review next year.
However, FCA director of policy, David Geale (pictured), has told New Model Adviser® it will not be carrying out a review solely of advice fees as adviser charges will also be included in next year’s review.
'We will be looking at the advice market as a whole [in the RDR review]. We will be looking at what has happened since FAMR and one of the aspects we'll be looking at is what is the cost of advice,’ Geale said.
Geale said the RDR review had been delayed until 2020 but the regulator decided to bring it forward to next year to coincide with an analysis of FAMR.
He added he is optimistic about what the RDR review will show.
‘What we have seen that I think is very positive is the results of the supervisory work that we did on suitability, where 97% of the cases we assessed were found to be suitable,’ he said. ‘That's a huge number, that's really good.
‘RDR would have played a significant part in that. From that perspective, I think it is good news. We have better qualified advisers, we have seen a number of advisers carry on their qualifications further than the requirements, which is encouraging, but let’s see what the review shows us.’
Earlier this month the FCA decided to hold off on a ban of contingent charging for defined benefit (DB) transfers.
Speaking with New Model Adviser® at the Pensions and Lifetime Savings Association (PLSA) conference in Liverpool, Geale said the FCA’s decision not to ban contingent charging was driven by concerns of increasing the advice gap.
'On the one hand there are particular conflicts of interest that come with a contingent model and some firms manage them better than others,’ he said. ‘On the other hand, there are concerns that if we were to ban contingent charging outright, there might be restrictions or a pulling back of the supply of advice.'
He said the regulator has not found a ‘causal link’ between contingent charging and unsuitable advice.
‘If we saw a causal link, that would be one indicator of rethinking contingent charging,’ he said.