FSA head of investment intermediaries Linda Woodall prepares for a year of reviewing the RDR’s impact and ensuring advisers comply with the rules.
The retail distribution review (RDR) deadline of 31 December was the beginning, not the end, of a long road to reforming financial advice, according to the woman charged with ensuring the changes deliver their intended outcomes.
Linda Woodall (pictured) is the latest in a string of Financial Services Authority (FSA) employees to be charged with overseeing the RDR. And while the regulator’s policy team may be taking a break in 2013, Woodall and her supervisory team are braced for a busy year, checking advisers fall in line with the new rules and that consumers benefit.
Woodall, who is head of investment intermediaries, said advisers must continually check their proposition delivers the right outcome for clients. She said the FSA would practice what it preached in this respect by reviewing the effectiveness and impact of its RDR policies over the coming year.
Four thematic reviews
The FSA will conduct four thematic reviews in three cycles over the next 12 months before publishing a formal review and research findings in 2014 on how successful the RDR has been, said Woodall.
The thematic reviews will be on professionalism, charging structures, description of advice and non-advised sales.
Woodall said the FSA would publish its findings and share guidance on what advisers needed to do to ensure good practice at the end of each cycle.
‘It’s recognised this has been a big change, and the fact that we’ve got this far is not the end of the story,’ she said.
‘There are three distinct cycles, and we will be sharing good practice and [information on] areas where we think the marketplace could improve.
‘[Advisers should] keep reviewing what they’re offering in the light of how they understand clients’ needs, and keep testing propositions and revise them if the original assumptions of what they need to keep going have turned out to be inadequate.’
Ensuring good practice
The first thematic review, kicking off later this month, will be of professionalism.
Woodall said the FSA expected 95% of advisers to be RDR-qualified. The regulator would then look into how advisers were charging clients, whether they were describing themselves as independent or restricted, and, finally, how non-advised sales might be used by firms to circumvent the RDR rules, she said.
The FSA would examine whether advisers were describing sales as non-advised as a means to continue to receive commission on legacy business or because they were not qualified to give advice, she added.
‘We see the next year as one of continuing to work with the industry. If we come across really egregious behaviour, we have tools at our disposal, but that’s the backstop.
‘What we’re seeking to do with our supervisory efforts is to continue to support the industry in an appropriate way,’ she said.
‘One of the things we want to do is to run surgeries and events where we can meet with advisers to find out what is going on and how their assumptions have panned out.’
The benchmark by which the FSA will judge the success or failure of the RDR will be consumer outcomes.
‘We want to see retail consumers get advice they can completely trust and that they are clear about the cost of,’ said Woodall.
‘It’s very much about having a successful advice market through the eyes of consumers as well as through [the eyes of] advisory firms.’
In December 2012, consultants Deloitte published research that found more than five million clients could be left without advice as a result of the RDR, as costs were made transparent, IFAs focused on higher-net-worth customers and banks exited the market.
The findings reignited the debate over the size of the advice gap and became the weapon of choice for opponents of the reforms.
Woodall, however, refuted the scale of the problem, suggesting the space left by the banks would be filled, and argued that adviser numbers would not fall in the aftermath of the RDR.
‘Nature abhors a vacuum,’ she said. ‘Where there is an opportunity, there is usually an organisation that will see that and look to fill it.
‘We know there are going to be over 30,000 advisers operating in the marketplace, and the typical independent or restricted financial adviser will very much still be there.’
2011- present FSA, head of investment intermediaries
2010- 2011 FSA, acting director of small firms and contact division
2008- 2010 FSA, head of savings and investments department