Whilst developing its proposals for the Retail Distribution Review (RDR) the FSA (now FCA) committed itself to carrying out a post-implementation review which would help it determine the extent to which the RDR was delivering the outcomes it was designed to achieve.

The FCA commissioned external consultants to undertake the first phase of the review which would consider whether the RDR is on course to deliver its original aims and flag any immediate issues.

The FCA has now published a report setting out the findings from phase 1 of its post-implementation review. The document has been published alongside a research report by the external consultants who carried out the review.

Overall, while in many respects the longer term effects of the RDR are yet to become clear, the evidence from the first phase of the review shows a positive picture, with encouraging signs that the RDR is on track to deliver its objectives in many areas. In particular the findings include:

  • the removal of commission paid by providers to advisers and platforms has reduced product bias from adviser recommendations reflected in a decline in the sale of products which paid higher commissions pre-RDR. It has also made it easier for consumers and advisers to compare platforms, increasing competitive pressure and leading to a significant reduction in Direct-to-Consumer platform charges;
  • an increase in the number of financial advisers gaining further qualifications, demonstrating growing professionalism in the sector; and
  • a mixed impact on price. Product and platform costs have broadly fallen, but there has been no fall in adviser charges.

The report also notes that as the market in some areas is adjusting, more time may be needed for the full effects of the RDR to become apparent. In particular, the report notes that:

  • there is little evidence that the advice gap has increased following the RDR changes;
  • opportunities for innovation in the market exist, including in relation to simplified or automated advice, but regulatory uncertainty in this area is an obstacle; and
  • more time is needed to determine whether the quality of advice has improved.

In the report the FCA notes one area in particular that warrants attention, namely the disclosure of costs of ongoing services. Although the FCA’s third and final cycle of its thematic review on the implementation of the RDR showed that firms have materially improved in clearly disclosing to clients the cost of their advice and the scope of their services, there remains scope for further improvement.

The FCA also states in the report that it is keen to remove any unnecessary regulatory obstacles that may stand in the way of simplified advice or other such services being developed. The FCA is aware that some firms perceive regulatory uncertainty in this area, and it has already taken steps to try and address this, including consulting on guidance in relation to sales that involve a personal recommendation and those that do not. The FCA states that its final guidance will be published early in 2015.

Phase 2 of the post-implementation review will be undertaken in 2017 to show the medium-term impacts of the RDR. A subsequent third phase of the review will consider the longer-term implications.

View Post-implementation review of the Retail Distribution Review – phase 1, 16 December 2014

View Europe Economics’ Retail Distribution Review: post implementation review, 16 December 2014