Ernst & Young warns RDR will increase product bias

Ernst & Young has warned that product bias will increase as a result of the Financial Services Authority (FSA) restricted advice channel.

Speaking at Aifa’s launch of its Advice Horizons report today, Robert Wood, the director of financial services at Ernst & Young, said many people will choose the restricted advice route over the independent channel.

He said: “Nine out of 10 wealth managers will be restricted because they can make more money that way.

“An unintended consequence of the Retail Distribution Review (RDR) is that product bias will increase as a result of high numbers becoming restricted.

“We could see a second round of bias returning to the market”

“We could see a second round of bias returning to the market.”

Peter Smith, the head of investment policy at the FSA, said: “Product bias will still be possible within the market but I don’t think it’s a feature of the restricted channel—I think it is a fact of life.

“If advisers are tied there is the potential for bias, but the FSA is looking at how firms are preparing for the RDR, which could touch on this issue. (article continues below)

“What we expect to happen is advisers make recommendations that are suitable for their clients.

“If within their product range they haven’t got something suitable they should say so. This raises interesting questions for the FSA about how that will work in practice and how we will supervise that.”