The Financial Conduct Authority (FCA) has declared the Retail Distribution Review (RDR), its "once in a generation" project to revamp the retail investment advice market, is working, though some concerns remain on the costs and labels of advisers' services.
The first stage of the post-implementation review of the RDR has shown it has reduced product bias and that advisers are offering investors an increasingly professional service tailored to their individual needs, the regulator claims.
The results have been published alongside the third stage of a separate review of RDR's progress, which is examining its impact at the firm level.
The initial results of the FCA's first post-implementation review, which is supported by research conducted by Europe Economics, found that the RDR has reduced product bias.
In particular, it found there has been a decline in the sale of products which had higher commissions pre-RDR and an increase in the sale of those which paid lower or no commission pre-RDR.
"This is a sign that commission is no longer a driving factor in advisers' recommendations," the regulator said.
According to the FCA, 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.
This is due in part, it said, to the introduction of simpler products and funds which have a lower charge, and advisers and platforms exerting more competitive pressure on providers, with platforms increasingly able to negotiate lower product costs.
In addition to meeting the required standards, Europe Economics found that an increasing number of financial advisers were gaining further qualifications, demonstrating, the FCA said, growing professionalism in the sector.
However, it said the impact of the RDR on price has been mixed. While product and platform costs have broadly fallen, adviser charges appear not to have decreased.
A separate study from Towers Watson, which was commissioned by the FCA to examine the possible existence of an advice gap, produced mixed results.
The firm said there is little indication of a lack of supply in terms of adviser numbers, and pointed to an "excess capacity" of 5,000 advisers currently in the market.
It added a lack of data on customer segment focus meant it "has not been possible" to analyse the supply of advice by segment, but did point to anecdotal evidence suggesting a potential lack of provision to less affluent clients.
But in contrast to reports of formerly-advised clients now being priced out of the market, Towers said the lack of capacity is most likely to impact those who have a "lower likelihood of seeking advice" to begin with.
Meanwhile, the regulator said it recognised some of its rules, particularly in relation to the advice labels 'independent' and 'restricted', were not resulting in improved consumer understanding. It said it would be interested in hearing stakeholders' ideas for "better ways" to present information to consumers on the nature of advice services.
This could include, it added, developing a proposal put forward by the Smaller Business Practitioner Panel to introduce a simple label that better sets the consumers' expectations by explaining the scope of the firm's advice.
FCA chief executive Martin Wheatley said: "The RDR aimed to create a truly professional financial advice sector; one that provides advice based solely on investors' best interests. It is still early days but the indications are that the sector has responded positively to the reforms.
"Importantly, we have seen a reduction in product bias, with a very noticeable decline in the sales of those products that before RDR came with higher commission.
"These are positive signs but we know there is more to do. For example, early next year we'll be looking at how we might encourage better disclosure of information to consumers. And, in 2017 we'll undertake a further review of how the RDR has worked. It is vital that we continue to keep these wide-ranging reforms under review."
The results represent the first of an expected three pieces of work examining the wider impact of changes brought about by RDR. The next paper will be published in 2017, the regulator said.
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