There was good to come out of the RDR in many ways, but at a price

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There was good to come out of the RDR in many ways, but at a price

The Retail Distribution Review celebrates its 10th birthday at the end of December.

Its aims were to ensure financial products and services delivered to consumers (clients) were clear, transparent, and met their needs. Another aim was to promote standards of professionalism that inspire consumer confidence and build trust.

Like everything in the world of financial services regulation, over some of the 40 years I have been part of it, it took a long time to gestate, cost a lot of money and changed (probably not forever) how retail investment products were sold, or, more accurately in RDR world 2022, advised upon and bought.

The link to 'professionalism' was intended to place financial advisers, now tooled up with ‘professional qualifications’, to use the master of the universe intellectual property that exams conferred upon them to deliver advice to a section of society that was prepared to pay for it and disenfranchise many more because they did not see why they should pay for advice when previously it was seen to be ‘free’.

However, unlike the professions the regulator intended to place advisers alongside (solicitors and accountants), the advice pretty much always was going to be and still is linked to a financial services product of some kind. A fund, a wrapper, an Isa, a pension plan.

That is when the lines blur as the sale post-RDR is now an integral extension of the advice process, simply rebadged.

For the regulator [RDR meant] rules, more rules and of course fees charged to regulated firms to feed the need created by more rules. Did it work? Like a curate's egg, in parts.

Pre-RDR, there were questions around free advice, product or commission sales bias, churning, access to advice, and product suitability.

The fee, something that used to be called commission, was post-RDR most often paid by the product provider via a deduction from the clients’ fund value, strangely enough almost always the equivalent of the commission that used to be paid.

RDR was designed to fix all these problems, a panacea in fact to cure all the ills that existed pre-RDR.

Sales was a key word in this process; it had become a dirty word. 

Pre-RDR financial advisers were viewed in some regulatory Canary Wharf corners as commission-hungry spivs whose activities were considered in many quarters to be more about the commission-generating product they were selling than about the customer.

Along with the RDR came a new language made up of words and phrases like stakeholder, consumer, outcomes, inherent conflict, inefficient markets, redress, compensation, clarity of advice, adviser charging, independent, restricted.

There was good to come out of this in many ways, but at a price.