The retail distribution review (RDR) will celebrate its 10-year anniversary on December 31 but advisers are split on whether this regulation has widened the advice gap and whether simplified advice could play a key role to tackle this.
The RDR regulation included a requirement for advisers to raise their knowledge levels from the benchmark Qualifications and Credit Framework (QCF) Level 3 qualification, commonly the Financial Planning Certificate (FPC) or Certificate in Financial Planning, to a Level 4 Diploma qualification.
The new requirements saw an increase in professionalism across the industry, according to Tim Morris, IFA at Russell & Co Financial Advisers.
However, he said: “A major downside is the advice gap widening as more people have been priced out of advice.
“I like the simplified advice proposals, at least in principle, because they should encourage more people to access advice.
“For me, it would be great to see a scheme for financial advice similar to that of legal aid. Although I do appreciate it would be challenging to agree funding. Mainly due to a lower perceived level of urgency from the government and general public.”
Likewise, Imran Rafiq, IFA at Cartier Wealth said one drawback of RDR was that it “brought about a division in inclusivity”, making advice unaffordable for people on a low income or those with low-value investments as firms aggressively focused on building AUM.
“When I set up my business, I was clear that I wanted to charge fair fees, based on the value I provided and not the assets accumulated,” he said.
“While this is cost-effective for clients with large assets, the fees can appear daunting for somebody on the first steps into their financial planning journey.”
Darren Cooke, chartered financial planner at Red Circle Financial Planning also agreed that RDR has seen the rise of the term 'the advice gap'.
But he said this gap always existed. “There were always cases where the remuneration, through commission, did not cover the work actually done.
“The difference now is that cost is largely borne by the client and by means of an upfront payment to the adviser.
“Where clients can afford monthly payments to a pension, for example, but not a lump sum, commission did cover that gap by spreading the cost over many months and allow those clients to access advice.”
Cooke explained that those with smaller amounts to invest were never really profitable to advise anyway, pre or post RDR.
“Better solutions need to be available for them,” he said. “Again I'm not convinced the simplified advice proposals are the answer and they are 10 years too late anyway. “
Elsewhere, Kusal Ariyawansa, chartered financial planner at Appleton Gerrard Private Wealth Management, said the minimum qualification level saw the “demise of the traditional adviser”, referring to those who lacked exam skill yet possessed considerable interpersonal skills.
Ariyawansa explained that this created a mindset to move away from a “sales-based, target-driven environment” to an advisory-lead profession.
