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"Quite simply, incentives matter. They change behaviour," the FSA chairman told the Savings & Pensions Industry Leaders Summit in Gleneagles. He told the audience of industry professionals that they were "failing miserably" in ensuring consumers associate their brands with reliability, trustworthiness and performance. This, he warned, represented a threat to the viability of the industry.

Sir Callum McCarthy's comments were made in September 2006, well in advance of the past 18 months' events that have crystalised such views so painfully for the financial services industry. His rallying cry for the industry was made three months after the FSA announced a review into the issues impeding retail investment product distribution.

The Retail Distribution Review (RDR) promised a root and branch shake-up of the industry, aiming to concentrate on five core themes: sustainability of the distribution sector, the impact of incentives, professionalism and reputation, consumer access to products and services, and regulatory barriers and enablers.

Arguably, the credit crisis induced financial turmoil that has spilled into the real economy and significantly undermined consumer confidence in financial services highlights the importance of such a dramatic re-think.

Chris Cummings, director general of the Association of Independent Financial Advisers (Aifa) said at the launch of its Future of Retail Financial Services report earlier this month: "The retail financial services market has not experienced a period of turmoil akin to today's troubles since the Great Depression. The RDR presents the FSA with a unique opportunity to start restoring consumer trust in financial services."

He continued: "Most importantly, the FSA must prevent the blurring of sales and advice that has helped to undermine consumer trust in the industry over the past few years."

Aifa, other trade and consumer bodies and government departments have been involved in the RDR consultation. In fact, so voraciously responsive was the industry to the discussion paper published in June 2007 that the FSA hurriedly brought forward its interim report to address some major worries of firms.

The subsequent feedback decreed that the RDR should be simplified. The areas requiring streamlining were inevitably the most complex and controversial, namely the FSA's concerns about commission-led product and provider bias; the proposed segmentation of distributors into "professional" advisers and "primary" advisers, with only highly qualified advisers who laboured under customer agreed remuneration (CAR) receiving the label "independent".

The CAR proposal, received barely two years after depolarisation, provoked bewilderment from advisers. While it sounded like a fees-only approach, some payments presently treated as commission could fall under this newly coined category, so long as the payments had been "determined with customer agreement".

Industry calls for "a simpler landscape", in particular for a clear distinction between advice and sales were heeded. April's interim RDR report stated there would be only one type of adviser, with "a step-change in the standards required of advisers".

It called for firms to act ethically, in line with the FSA's TCF initiative, offering "remuneration determined without product provider input and recommending products from across the whole market", and meet appropriate minimum professional standards (skills, behaviours and knowledge). Advisers meeting this criteria would be labelled "independent", the FSA said in the report, "both in terms of status and in their practices".

Consequently, the FSA acknowledged that "primary advice" diluted the advice brand and therefore should be re-named. The RDR Feedback Statement, published last week, confirmed that a Money Guidance service is presently being piloted in partnership with the government. This service aims to address the advice gap affecting less affluent households in the run up to Personal Accounts' introduction in 2012, which will automatically enrol employees into a national pensions scheme.

The final feedback statement provided the clear demarcation between types of adviser. The lauded "independent" label will now only apply to those providing unrestricted, unbiased, whole of market advice and, crucially, adhere to "adviser charging" (previously termed CAR). While the FSA said it "would prefer to go further and not allow providers to play any role in remuneration", barriers from MiFID legislation and personal taxation rules prevented this.

Instead, by the RDR implementation deadline of December 31 2012, advisers receiving commission of any type from providers will be required to deduct this sum from the customer agreed remuneration, therefore "removing the potential for bias", it stated.

The interim report had hinted that sales is considered a strictly non-advised service, able to operate in the current regulatory framework, yet last week's feedback statement announced that "sales advice" would be the label to replace tied - and multi-tied terminology. Sales advisers will be those who recommend the products of one or a limited number of providers, offering this transparency to consumers and showing clearly the cost of their advice. Sales advice will include simplified advised sales and execution-only transactions.

Julie Patterson, IMA's director of authorised funds & tax, says the latest proposals are "a mixed bag" and remains concerned whether consumers will understand the concept of sales advice. "It is important that any new standards or restrictions be embedded in rules, that those rules be applicable to all sectors, and that they apply appropriately to firms that are providers or distributors or both" she says.

The Financial Services Skills Council will set advisers' minimum level of qualifications and will be overseen by a Professional Standards Board, to be established by the FSA, with the possibility of it becoming an independent statutory body. This latest RDR report has raised the threshold qualification from QCA Level 3, proposed in the interim report, to Level 4.

In tandem with the RDR, the FSA is reviewing the prudential requirements for personal investment firms and a consultation paper will be published shortly, outlining proposals to increase the minimum standard and improve the quality and consistency of capital for all firms.

This is concerning to Aifa's Mr Cummings, who believes new prudential requirements will "place undue burdens on firms during a dire economic climate", increasing costs.

FSA RDR TIMELINE

June 2006: John Tiner, FSA chief executive, launches a review to consider the root causes of problems emerging from the distribution of retail investment products.

September 2006: Sir Callum McCarthy, FSA chairman, slams the industry for “failing miserably” in its service to customers during a speech at the Gleneagles Savings & Pensions Industry Leaders' Summit.

November 2006: Clive Briault, managing director of retail markets outlined the scope, priorities and approach of the retail distribution review .

January 2007: Mr Tiner announces his resignation as FSA chief executive.

June 2007: First RDR discussion paper is issued. Six-month consultation period begins.

July 2007: Hector Sants is appointed chief executive, succeeding John Tiner.

December 2007: Announcement that RDR interim report will be published two months ahead of schedule to calm industry nerves.

April 2008: RDR interim report is published.

July 2008: Generic financial advice summit – Money Guidance – hosted to discuss implementation, drawing on proposals from the Thoresen Review.

August 2008: RDR feedback statement is postponed by one month to allow Jon Pain, new managing director of retail markets, to get up to speed with RDR proposals.

September 2008: Mr Pain joins the FSA.

November 2008: Final RDR feedback statement published. Start of further six month consultation.

December 2008: The FSA's 08/09 Business Plan will address issues of consumer responsibility in the purchasing of financial products.

December 2012: Deadline for implementation of the RDR