The report, which was commissioned jointly by the Association of the Luxembourg Fund Industry (ALFI) and Fundscape, said lessons should be learned from the UK when implementing new regulation in Europe, specifically the Markets in Financial Instruments Directive review (MiFID II).
The wide ranging report assesses the impact of the RDR in the UK and other similar changes in countries across Europe and tries to gauge the potential impact of the MiFID II regulation which will also introduce a ban on “inducements”.
Already in its implementation phase, MiFID II is due to be in full effect by January 2017.
“Unknown consequences”
The report warned that implementing similar legislation to the RDR across multiple jurisdictions, with different cultural values and distribution landscapes could create many “unknown consequences” on Europe’s markets.
Looking specifically at RDR, it identified the “flaws” of the new legislation, issues which were also highlighted in industry responses to a consultation paper prior to the implementation.
The report claimed that that the FSA had failed to act properly to these responses, offering little as an alternative. Changes were made “without a collaborative industry voice”, it said. “The industry and regulator failed to work together, resulting in a final draft that was not as good as it could have been.”
Plummeting by half
Since the implementation of RDR in December 2012, the report said 20% of UK financial advisers have exited the industry, creating an increasingly barren landscape for financial advice, otherwise known as an “advice gap”.
“The FSA may have been comfortable with 20% of advisers leaving the industry, but nowhere in the goals of the RDR does it say they would like fewer consumers to access advice or investment product,” it said.
ALFI and Fundscape identified a few examples where an increase in qualification requirements caused a huge downward slide in the number of advisers. An example of this is in Germany where the report cites adviser numbers plummeted from 80,000 to 40,000 after new qualification criteria was introduced in January 2013.
“Despite the acknowledged advice gap in the market, there had been a distinct lack of development of simplified advice solutions since the introduction of RDR, mainly because of regulatory confusion,” the report said.
“Distributors were worried that they would accidentally stray into regulated advice territory and so simply steered clear of this arena.”
Fundscape therefore criticised the regulator for failing to provide clarity to the industry on what constitutes and does not constitute advice.
“Trouble ahead”
It also said there “may be trouble ahead”, suggesting the “loss of clients would be inevitable”, particularly for those advisers continuing to work in the European market as independent advisers because some customers would be “priced out of the market”.
Referring specifically to the proposed blanket ban on inducement, the report said this will have a “considerable impact” on the European market, but would have the least negative impact because of its already established fee-based advice structure.
Speaking at a roundtable event in London yesterday, ALFI’s chairman, Marc Saluzzi, said: “There was an outcry across Europe, especially in France and Germany, against a blanket ban on inducements.
“If it continues to push in that direction then we will have a significant advice gap.”
