The FCA has published an evaluation of the impact of the Retail Distribution Review (RDR) and the Financial Advice Market Review (FAMR).
Both the RDR and FAMR (the latter carried out in collaboration with HM Treasury) sought to improve the distribution of retail financial services products, and the FCA committed to evaluate their impact, to test whether they delivered their desired outcomes. The aim of the RDR was to establish a resilient, effective and attractive retail investment market that consumers had confidence in and trusted.
The objective of FAMR was to identify ways to make the UK’s financial advice market work better for consumers. Improving the mass market for consumer investments is a core plank of our Business Plan Priority to improve the overall consumer investments market.
The evaluation found evidence of some improvements in the market since the conclusion of FAMR:
- approximately 8% (4.1m) of all UK adults have received financial advice, an increase from 6% (3.1m) in 2017
- adviser numbers are up from 35,000 in 2012 to 36,400 in 2019 (4% increase)
- the creation of the FCA’s Advice Unit has helped firms to develop new automated advice models (it has received 137 applications for support, with 65 accepted)
- estimated assets under automated advice services increased from £0.4bn in 2016 to £3.2bn in 2019
- consumer awareness of automated advice has increased, with 19% of consumers reporting having heard of these services (compared to 10% in 2017)
The evaluation also found that while more consumers are getting the support they need, further innovation could help even more consumers make better use of their finances.
- Many consumers are still holding money in cash that could be invested to provide potentially higher returns, but they have not sought or received the help with their finances that would help them to make better investment decisions.
- The industry offers a range of services but there is significant clustering around certain service types and price points. More innovation in services can help drive greater competition between firms across the market.
- More tailored guidance services and simpler advice services could help to attract more consumers towards the help they need. However, during our review, some firms raised concerns about understanding the point at which more general forms of consumer support become advice, suggesting this limits their ability to innovate.
Sheldon Mills, Interim Executive Director of Strategy and Competition, said: ‘We want consumers to have access to high-quality advice and guidance at the right time in their lives, to give them the confidence to make better investment decisions.
‘Our evaluation has found the advice and guidance market is moving in the right direction, but still has further to go. We will play our role to support the market to improve further, in the interest of more consumers. We will use the evidence base this evaluation has given us, along with the responses to our Call for Input on consumer investments, to shape our work to improve the market.’
The FCA will supplement the evidence from this review with feedback to its Call for Input on Consumer Investments, which closes for consultation on 15 December 2020, to inform its next steps to tackle some of the regulatory challenges. The FCA expects to carry out this work during the first half of next year, and will provide a further update at that point.
Notes to editors
- Evaluation of the impact of the RDR and FAMR
- The evaluation focuses on financial advice, guidance and information services available for retail investments and pensions, not advice relating to credit, mortgages, insurance or protection products. As FAMR was a joint initiative with HM Treasury, we conducted this part of the review jointly with them.
- The RDR was launched by our predecessor, the Financial Services Authority (FSA) with most of the rules it introduced taking effect at the end of 2012.
- The aim of the RDR was to establish a resilient, effective and attractive retail investment market that consumers had confidence in and trusted. It made several significant changes to the way investment products are distributed to retail consumers in the UK. The RDR raised the minimum level of adviser qualifications, changed the way charges and services were disclosed to consumers, and banned the use of commission to pay for advice.
- The FAMR was launched jointly with HM Treasury in 2015 and built on the work of the RDR. The objective of FAMR was to identify ways to make the UK’s financial advice market work better for consumers. The review had a wide scope and looked across the entire financial services market to assess the accessibility of advice and guidance to help people with their financial decision-making.
- The FAMR report in 2016 included a series of recommendations for the FCA, HM Treasury and other organisations. In June 2017, we published a baseline set of market indicators which serve as a benchmark against which we can track changes in the advice and guidance market over time.
- Our 2020/21 business plan included ‘Enabling effective consumer investment decisions’ as one of our 5 key priorities over the next 1 to 3 years. It sets out that 1 of our 3 target outcomes under this priority is to ensure consumers make effective decisions about their investments.
- The FCA launched a Call for Input on consumer investments in September 2020. Responses are due by 15 December 2020.
- Find out more information about the FCA.