Tenet, a firm that provides support services to UK independent financial advisors, says a tougher regulatory regime for IFAs under what is called Retail Distribution Review will not help consumers but in fact reduce the quality of client service.

The RDR is a programme, due to take effect by 2012, which is being pushed by the Financial Services Authority, the UK regulator. It is designed, the FSA says, to raise the quality and independence of financial advice by introducing new education qualifications and pushing greater use of set fees instead of sales commissions.

But Tenet echoed concerns of some commentators who fear that the RDR’s added regulatory burden will achieve the opposite effect of what is intended, particularly as financial services have been forced to cope with a raft of new rules already, such as those under the European Union’s recent MiFID directive.

Regulations, while they purportedly raise standards of customer service, can sometimes raise barriers to entry into markets and drive some firms out of business, which arguably hurts consumers by reducing competition and innovation. On the other hand, it has been a long-standing complaint that UK financial advice is still excessively driven by commissions and needs to be more impartial.

“The industry must join forces more effectively and be given positive incentives to develop by the regulator. Much of the impending regulation offers little by way of incentive and is perceived by many as a threat,” said Keith Richards, distribution and development director at Tenet.

“Consequently, it is increasingly difficult to see how consumers are not going to be negatively-impacted, as regulation forces further consolidation across the whole industry,” he said.

“RDR will result in changes to adviser remuneration and qualifications, as well as business model transformation. The potential effects of this are only partially understood and the latest FSA update, confirming that the costs of change have already been significantly underestimated, does not bode well,” said Richards.

“Tenet supports many of the principles for change, but we are increasingly concerned that the impact of new regulations will fail to deliver a more positive marketplace for the majority,” he added.