The UK financial regulator’s shakeup to the IFA market will raise standards of advice and reduce bias but there are serious concerns that the broad public will find it harder to afford such services if new rules drive up costs, a conference in London heard yesterday.

The Financial Service Authority’s Retail Distribution Review, due to take effect by 2012, aims to raise education qualifications for IFAs, remove use of commission payments and increase the transparency of fees and costs. The idea behind the RDR is to raise the overall professionalism and objectivity of financial advice. The reforms are being introduced at a time when there have been concerns about mis-sellings of products in recent decades, such as private pensions, so-called "precipice bonds" and mortgages.

There is a risk that rising regulations, however, will increase barriers to entry into the IFA market and leave many members of the public without access to affordable advice, speakers said at the conference, hosted by the Institute of Chartered Accountants in England and Wales.

“There’s no doubt that the RDR will move many IFAs out of the business. It would be perverse if one of the consequences of the RDR were to make financial advice less accessible,” Jeff Prestridge, personal finance editor at The Mail On Sunday, said.

As a result, there will be a temptation for IFAs to focus on the top 10 per cent of the UK population in terms of their wealth holdings, leaving the remainder of the public to fend for themselves, he said. 

The RDR is forcing financial firms to spend heavy sums on IT and related systems, the conference heard. Peter Williams, head of industry development for Aegon UK, said that 40 per cent of Aegon’s budget between now and 2012 was being devoted to RDR-related activity.

Williams predicted that the RDR could drive as many as 15 per cent of IFAs out of the business although this prediction was not as severe as some that he had seen mentioned, such as 20 per cent or higher.

Paul Garwood, director of personal financial planning, Smith & Williamson, said that he would be very disappointed if professional services firms engaging in the financial markets did not offer the level of service as directed by the RDR.

He accepted that the issue of the RDR driving some financial advisors from the business and squeezing the supply of advice to the wider public was a cause for concern. “I think there should be some facility where experts can give their advice further down the food chain,” he said.

Removing commission payments, Garwood said, created a problem for those IFAs who had in the past used this business model to serve the less wealthy type of client. “It is a very difficult issue to take commissions away completely,” he said.