Speaking at the Dynamic Planner conference yesterday (February 7), Therese Chambers, director of consumer investments at the FCA, said it was important to mark the transition from the retail distribution review (RDR) 10 years ago to now.
She said in the past, advisers were incentivised to sell rather than advise.
“RDR sought to drive a sea change in the way financial advice firms and their advisers operated and it did this by making several significant changes in the way investment products are sold.”
The three changes made were: the banning of commission - with firms setting their own charges, improvements made to the way advisers disclose their services and charges and an introduction to a minimum level of advice or qualifications for advisers.
Chambers explained that at first, this was also controversial but now the majority of financial advisers attain qualifications that are significantly beyond the minimum.
Similarly, she explained that the consumer duty will improve the market in the same way.
In terms of price and value, Chambers said the FCA highlighted concerns that some clients may be receiving ongoing services that do not represent value for money.
“We found that adviser charges were clustered at a small number of price points,” she said. And that interestingly, more expensive advice services did not have noticeably different features to cheaper services.
“Now, it's important that these issues are not allowed to persist, they are incompatible with the consumer investment market that society needs.”
Chambers said one particularly important change for financial advisers will be a change to their role.
Pre-existing governance rules have been placed on advisers as distributors of investment products.
However, along with the duty, this will change and providers of services such as advice and discretionary management, will be regarded as manufacturers of the services.
“This means that advice firms need to think about whether the advisory services meet the needs of different consumers within identifying target markets,” Chambers said.
“This will be a new challenge, a new approach that firms will have to engage with.
“They will also need to ensure that their charges are commensurate with the value provided to customers that they serve.”
Chambers added: “So firms with a homogenous one size fits all service in the larger model should be thinking about that. We are expecting to see changes to charter models.”
Discussing what the consumer duty means for financial advisers, Chambers said it was important to note this is not just “treating customers fairly rewritten in a slightly different language”.
