Simon Morris, partner at CMS Cameron McKenna, believes that the Financial Services Authority (FSA) proposed changes will lead to a shortage in regulated IFAs, causing advice to become too expensive for many.
However, he believes that once these implications become known, the FSA will be forced to change its rules.
“The FSA is proposing to increase advisory standards, and everyone agrees that’s a good thing, but there are a number of potential problems,” Morris warned.
Under the RDR, pensions advisers would need to be independent. This, according to Morris, would result in appointed representatives and tied advisers in other financial services having to stop offering pensions advice. The reduced number of advisers could then arguably charge more for their services.
Morris predicted: “This won’t get past the consultation stage. The FSA will have to abandon the independent rule.”
Advisers would also be forced to employ customer-agreed remuneration fees instead of commissions. Providers will not be able to determine remuneration – it will be decided entirely between the adviser and the customer.
Products would be priced by manufacturers, excluding charges to cover the costs of remuneration to advisers for their services.
Advisers will then agree with customers the level and pattern of remuneration, in the context of a discussion of all services being supplied, similar to a fee discussion.
Morris also dismissed as “nonsense” the idea that introducing the RDR would increase the number of IFAs available to the general public .
“It’s utter rubbish,” Morris said. “It follows that if you force all tied agents and appointed representatives to stop offering their services that those left over will be more expensive; the market will see a contraction, not an expansion.”
Charlie Thomas
