According to Shaun Crawford, head of insurance advisory at Ernst & Young, the FSA’s latest Retail Distribution Review consultation paper leaves many questions remaining: “For example, what proposals, if any, will the FSA put in place to help adviser firms transition to fee-based models? How will adviser charging work in practice when, these days, most investment propositions are multi-fund based?
“The costs to the industry of shifting to an adviser charging model have been grossly underestimated. The FSA has made clear that the transformation involved in RDR implementation will be expensive for distributors and providers alike. The estimated investment of close to £0.5 billion will be shared across the industry by 2012, which is a staggering amount. This will also be coming on top of the other industry initiatives such as preparing for Solvency II and implementing treating customers fairly.”
However, he has some concerns around the quantity of future advisers: “A significant rise in the quantity of advice – be it independent, restricted, simplified or basic – is absolutely essential in a country where the vast majority of individuals are under-pensioned, underprotected and have far too few savings,” he commented.
“The consultation paper does start to tackle this issue with the introduction of ‘simplified’ and the continuation of ‘basic’ advice, but the distinction between the two is somewhat obscure. Given that simplified advice carries the same requirements in terms of adviser charging and qualifications, it is unclear why a firm or adviser would opt for this route over the independent and restricted advice options on the one hand, or over basic advice on the other. It seems unlikely that simplified advice will prove to be a commercially viable option.
“Nevertheless, basic advice (with its exemptions) may offer some real opportunities for the providers and distributors who are prepared to invest time and money exploring this option.
“At the other end of the advice spectrum, there clearly a question over the number of advisers who will remain following on from the current economic climate, increased capital adequacy levels, and the RDR’s professional standards proposals. Of a population of over 30,000 advisers, many industry commentators are expecting at least a third to leave by 2012. We do not disagree but we do see the profession being potentially of more interest to graduates given the professional qualification it will offer them,” he concluded.
