Retail Distribution Review

The Retail Distribution Review (RDR) is an FSA initiative to protect consumers. It wants to establish more confidence and trust in UK financial services at a time when consumers need help and advice.

The new rules will cover advisers in the retail investment market, regardless of the type of firm they work for (including banks, product providers, independent financial advisers, wealth managers and stockbrokers). It covers the entire industry from firms that create products to those that advise and sell them.

The purpose of RDR is to improve the consumer experience of financial services by changing the way retail investment products and related advice are distributed and by making the cost to consumers more transparent.

The FSA wants to put the advisory market on a similar professional standing as accountancy and law.

Post-RDR there will be a revised market structure to distinguish clearly between independent and restricted financial advice which advisers will need to disclose to consumers early in the advice process.

Key RDR aims are to make sure that:

• Consumers are offered transparent and fair charging for advice and commission bias is eliminated
• Consumers understand the service they receive
• Consumers receive advice from respected professionals

RDR rules will require advisers to:

• Disclose and separately charge for their services
• Clearly describe their services as either independent or restricted and this will need to be disclosed early in the advice process. In addition, the FSA has introduced a new type of advice – Simplified Advice which aims to offer advice to people with “simple” financial needs.
• Adhere to consistent professional standards, including a code of ethics.

Post-RDR commission and provider factoring (upfront indemnity commission) will be banned for new advised business on retail investment products. Non-advised and execution only new business can still receive commission. By creating a level playing field that advisers have to operate within and to the same high standards, the FSA believe it will improve the overall customer perception of the industry and in the longer term this should benefit all those that work within it.

Most RDR changes will come into effect on 31 December 2012.

Many firms are already making changes to the way they operate and many financial advisers are taking new qualifications or doing “gap fill” to get to the required standard.

There are still some areas where the RDR rules and FSA guidance are still undecided with ongoing industry engagement on:

• Platform rules
• Product Sales Data – what the MI requirements are for product providers
• Simplified Advice – how the FSA view simplified advice working in practice
• Legacy commission – how it will affect the industry if it is banned

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