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UK advice laws diminish product bias

The British corporate regulator has released some key findings of its review of compliance with the UK’s FOFA-like financial advice laws, with potential lessons for Australia.

The UK Financial Conduct Authority has handed down its “post-implementation review of the Retail Distribution Review” (RDR) – new laws for financial advisers that banned conflicted remuneration and drew a distinction between ‘independent’ and ‘restricted’ advice – finding that “product bias” among financial advisers has been reduced by the reforms.

“The RDR aimed to create a truly professional financial advice sector; one that provides advice based solely on investors’ best interests,” said FCA chief Martin Wheatley.

“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.”

Europe Economics – an independent auditor appointed to the review by the FCA – found a decline in the recommendation of products which previously had higher commissions and an increase in products that had lower or no commission prior to the RDR being enacted in 2012.

The review also found that an increasing number of advisers are gaining further qualifications, while the impact of the RDR on pricing has been “mixed”.

“While product and platform costs have broadly fallen, adviser charges appear not to have decreased,” the report states.

“There is little evidence that the availability of advice has reduced significantly, with advisers still willing and able to take on more clients.”

It also found that improvements are needed in the disclosure of costs and ongoing services to clients.

However, the review is a marked improvement on the previous update, which found 73 per cent of advisers to be non-compliant with the new laws.