In a 32-page document titled “The Heath Report 2”, Garry Heath said that between 7,260 and 15,510 advisers could be affected by the removal of the annual fee paid to advisers by customers over the lifetime of products.
The removal of trail commission was one of the principals of the Retail Distribution Review (RDR) carried out in 2008 by the Financial Conduct Authority (FCA) which ultimately lead to legislation implemented in December 2012.
It hoped to address failings in the financial sector by removing commission payments to advisers and providers, ensuring advisers have a minimum level of qualification, and improving the transparency of charges.
Worst case scenario
Heath predicts that the commission ban could at worst lead to a 47% loss in adviser capacity when added to the 13,500 advisers he predicts to have already been displaced by the RDR.
As a result of this, his report “demands” that the FCA eradicates the planned removal of trail commission in 2016 immediately, “so that further damage can be avoided”.
“The loss of trail commission and its consequences was the first reason for the existence of the Heath Report,” he writes.
“RDR sought to create a commission free market in which the cost of the product was separated from the cost of advice.
“However, not content with creating a new regime for future advice, the FCA also wants to back date the process by moving funds invested before RDR from heritage funds into ‘clean post-RDR funds’.
“If they insist on this, another round of adviser exits are guaranteed.”
The report goes on to suggest that the IFA sector is likely to face a “spiral of decline” if the FCA continues to interfere.
“It is now time to expand the concept of transparency to disclosing the cost of regulation as a separate item, perhaps based on the firm’s previous year’s regulatory cost,” it says.
“In this way clients can discriminate between the value they receive from their adviser and the cost of regulation over which the adviser has not control.”
“Labour intensive ghetto”
It also accuses the RDR of “seeking to corral the IFA sector into a high service labour intensive ghetto encouraging it to abandon the mass market it has serviced so well for so long.”
In response to the report, the FCA said: “We do not recognise the picture that it presents and we believe the post-implementation review is the most thorough-going work yet done on the RDR and its effects.”
The Heath Report 2 was created to examine what Heath sees as consumer detriment caused by the FCA’s actions in introducing the RDR.
The latest publication follows an interim report released in September, previously covered by International Adviser.
That report suggested that 3.5 million consumers have been “divorced” from advice by the “interference” of a post-RDR FCA.
