If you are a consumer of retail financial services, you should have heard by now about the Retail Distribution Review (RDR).
This was a series of reforms introduced by the then Financial Services Authority (FSA) on 31st December 2012.
It saw financial advisers become subject to higher minimum professional requirements and banned commission on most retail investment products.
Commission on pension, investment and many protection products was replaced with a system called ‘adviser charging’ which sees clients and advisers agree their fees before a recommendation is made.
As a result of the RDR, all financial advisers in the UK must now hold a Diploma level professional qualification as an absolute minimum.
Many have chosen to go further than this minimum requirement to demonstrate their technical competence.
In addition, all financial advisers must hold a Statement of Professional Standing (SPS) from an accredited professional body, typically the Chartered Insurance Institute (CII) or Institute of Financial Planning (IFP).
This is an annually renewable certificate which confirms your financial adviser has undertaken a minimum amount of Continuing Professional Development (CPD) activity and acts in an ethical manner.
These are important reforms to the retail financial services sector.
Despite their importance, less than one in ten consumers are aware of the RDR, according to new research conducted by YouGov.
The survey of 2,000 UK adults in September 2012 and again in February 2013 found that consumer attitudes towards financial advice had not changed significantly since the RDR was introduced in December 2012.
This is a real shame.
The Retail Distribution Review offers a great opportunity for an emerging profession to restore trust and demonstrate a modern way of working with clients.
It is still early days, but anecdotal evidence suggests that the RDR is resulting in a more highly qualified advice sector with fewer inappropriate sales driven by commission bias.
There is still work for the Financial Conduct Authority to complete; closing a few of the loopholes inadvertently created by their predecessor and creating a level playing field between advised and non-advised services.
There is also much talk of an ‘advice gap’, which we believe really refers to a ‘product sales gap’.
Those that need and want professional advice can readily obtain this from qualified, experienced and reasonably affordable independent financial advisers.
Where a gap has emerged in the retail financial sector is as a result of the closure of bank direct sales forces. It could be argued that the UK consumer is better off as a result of fewer bank ‘advisers’ out there flogging inappropriate and high-risk products.
I hope that all those who already have an IFA are fully aware of the Retail Distribution Review, what it is trying to achieve and (most importantly) what it means for them.
