On 16 December 2014, the FCA published a report on the results of the first stage of its post- implementation review of the Retail Distribution Review (the RDR). The majority of the RDR changes came into effect in December 2012. The FCA commissioned external consultants Europe Economics to undertake the first phase of the review and their report has also been published.
The FCA says that although it is too early to obtain a definitive picture of the impact of the RDR, the evidence from the first stage of the review shows a positive picture, with encouraging signs that the RDR is on track to deliver its objectives in many areas.
- the removal of commission paid by providers to advisers and platforms has reduced product bias from adviser recommendations reflected in a decline in the sale of products which paid higher commissions pre-RDR;
- product prices have fallen by at least the amounts paid in commission pre-RDR, and there is evidence some product prices may have fallen even further. The removal of commission also means that providers who sold lower or no commission products pre-RDR are now competing on a more equal basis. The evidence suggests that adviser charging is likely to have increased post-RDR, at least for some consumers. A longer-term review of prices should bring greater clarity as to the effect of RDR on total cost of investment;
- the vast majority of advisers are now qualified to the new minimum standards and there has been an increase in the number of advisers going beyond these minimum standards. The FCA says that the increase in qualifications, along with greater focus on provision of on-going advice services, indicate positive moves towards increasing professionalism in the advice market;
- overall firms appear slightly better placed to deliver on their long-term commitments, with both average revenues and profitability of advisory firms having increased. The costs to firms of complying with the RDR have been in line with or lower than expectations, with on-going costs largely successfully absorbed into business as usual costs by the industry.
The report also gives details of the areas where the market is adjusting and where more time may be needed for the full effects of the RDR to become apparent.
The FCA says that the next phase of the post-implementation review will be published in 2017, which will allow it to draw from at least three years of evidence. As firms complete the transitional process, the FCA expects to be able to undertake a more complete analysis as to the medium-term impacts of the RDR. It will also continue to monitor trends throughout the post-implementation review period. A subsequent, third phase of the review will consider the longer-term implications.