The Retail Distribution Review (RDR) will create uneven playing field in favour of execution-only brokers much to the detriment of consumers, warned two experts.
Nick Flynn and Billy Burrows have warned that while independent annuity advisers will operate on fee-based system after RDR comes into effect, execution-only brokers can continue selling the same annuity products on commission basis.
This discrepancy can leave certain customers worse off since they wrongly assumed that execution-only brokers would meet their requirements adequately, argued Mr. Burrows, director of Better Retirement Group.
“Customers come to us and we provide them with information, advice and quotes, set up the annuity and agree a fee. For most people, the fee is the same as commission”, he said.
“(However) the problem with RDR is that execution-only will carry on charging commission so customers are left with the impression that one service is free, and one is not, while the end result might be the same. Customers might end up making poor decisions because they did not get proper advice”, he added.
Urging FSA for more transparency, Mr. Burrows wondered how commission based execution-only brokers will manage to sell the same annuity products after RDR comes into effect.
“The RDR rules are more designed for investments. At-retirement does not necessarily fit into the same model”, he cautioned.
Mr. Flynn – divisional director at The Retirement Adviser, was blunt in his criticism saying the at-retirement segment shouldn’t be under RDR in the first place.
“At-retirement is a growing and changing industry and it is a shame that it has been caught up in the RDR and not been addressed separately”, he said.
“Everything we do is advice-driven, so it is frustrating that in theory non-advice can actually give some type of similar result”, he lamented.
After RDR comes into effect, many consumers will not understand the difference between non-advice and advice business, making business viability difficult, he added. “Come RDR, the difference will be extreme. We would like to stay in the advice camp but have to make sure it is viable”, he said.
However, a spokesman confirmed the discrepancy but defended the decision saying: “The rationale is that where advice is not given, there is no danger of bias. The services offered in execution-only and advice are radically different, so it is incorrect to say there is a disparity”.