By requiring financial advisers to disclose transparently the fees savers pay for advice, RDR aims to help rebuild shattered trust in the financial services industry.
But before it even comes into force, numerous column inches have already detailed cracks appearing. It’s been suggested that RDR will create advice orphans, resulting in millions being denied access to investment advice by regulation that was meant to open it up.
Research from Deloitte suggests that 5.5m savers could fall into this advice gap, because the amount they save makes it uneconomical for financial advisers to service them. The FSA’s own research found that as few as 38 per cent of advisers say they intend to provide advice for clients with less than £20,000 in savings. To put this into context, data from Halifax shows the average UK household has less than £250 in savings, and figures from Scottish Widows suggest that only half of Britons saved anything at all this year.
While RDR was developed for all the right reasons, its rationale risks getting lost in translation, and millions of investors look set to be driven to DIY investing or to low-growth, cash-based savings.
This is not progress. It is yet another example of how the UK’s system of regulation is no longer fit for purpose, and how consumer protection needs to be enhanced. As professor John Kay argued in his recent report on the UK equity markets, we do not need more layers of new regulation, but regulation does need to work better.
In January 2012, we launched The True and Fair Campaign to call for 100 per cent transparency in fund fees and charges. We have also argued that investors should know the total cost of investing – the sum of all charges across all savings and investment products in one simple number. We’ve been criticised by many in the industry, but the savings landscape in the UK remains deeply anti-consumer.
The financial services industry has shown a total lack of regard for consumer protection, as we saw in the recent payment protection insurance mis-selling scandal. RDR promised to try and address this, but all the signs suggest it will fail. We cannot allow the law of unexpected consequences to rob a generation of savers of advice at the very time when they need it the most.
As RDR approaches, we must find robust ways of bridging the gap, and ensuring the estimated 5.5m people affected are not left in an investment advice wilderness. The Financial Conduct Authority needs to address the shortcomings of RDR and look for workable, effective and practical solutions that will ensure the availability of affordable advice. Anything else, and it will be impossible to reverse the erosion of confidence in Britain’s financial services industry.
Gina Miller is co-founder of SCM Private and leads the True and Fair Campaign.