The Retail Distribution Review has been a double-edged sword.
Although it has wielded some good for a select few, there is no denying that it has caused destruction to the financial advice market.
The main benefit has been gleaned by IFAs with strong client relationships. They have really prospered because there are now fewer IFAs and in general there is far less independent advice. This makes those that are left more valuable.
However, as we approach the 10th anniversary of RDR, it is important to reflect on the problems it has caused.
The rules were aimed at improving the standard of financial advice and reducing mis-selling. These are noble goals.
However, this has also meant that the requirement to obtain appropriate qualifications has become harder, and that has made it more difficult to get into the profession.
And if you add an ageing population into the mix, that highlights how RDR has exacerbating advice shortages and further widened the advice gap.
There has also been a shift in the balance of power to product providers.
I think this shift is damaging because it reflects a manipulation of the regulatory framework to suit those in power.
If you analyse most of the major scandals since RDR they have been caused by poor products passing into the UK market and not from poor advice.
To blame the regional IFA for a poor product is similar to blaming the local BMW garage because there is a problem with the new 3-series brakes.
It is not the garage’s fault, it is the fault of the car manufacturer.
Similarly, within the financial advice market, it is not usually the advice that is at fault, the problem often lies with the poor product.
So, what is the long-term solution to this mess? The answer lies in regulating products onto the market more.
RDR also started a chain reaction of weeding out smaller players and consolidating firms, which has now reached the larger family-owned IFA firms.
I believe this has been done to make it easier to regulate the industry. The Financial Conduct Authority would prefer to regulate two firms with 300 advisers each, rather than 20 firms with five advisers in each.
As such, I think companies such as St James’s Palace have seen a huge swell in both share price and assets under management as a result of RDR.
It is also worth noting that the government keeps changing the goal posts, and that impacts the value of advice firms.
As such, the biggest reason for exiting remains that families have too much wealth stored in their family-owned advisory firm when considering the whims, changes of direction and fads of the government.
