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RDR 10 years on: FCA unveils plans to ‘streamline’ investment advice

RDR 10 years on: FCA unveils plans to ‘streamline’ investment advice

In recent years, the retail finance industry has seen a broad shift towards empowering individual customers to take more control over their finances.

This shift has coincided with an overall movement within the market for customers to take greater control over their own personal finances. For example, the transition from defined benefit pension schemes to defined contribution schemes has given individuals much greater freedom over how they manage their long-term finances.

This in turn gives individuals a far greater degree of personal discretion and responsibility for ensuring that they can achieve their financial goals. 

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The FCA’s evaluation of the impact of the Retail Distribution Review and its Financial Advice Market Review recognised that more and more individuals across the UK hold their savings in cash, rather than in investments.

Moreover, individuals have more options (via the usage of self-invested personal pensions and/or the ability to take lump sum amounts from a pension) to take control of how their finances are managed.

The FCA recognises that one of the ways to encourage more people to take on a more pro-active role in the management of their finances, and therefore make the most of the money they have, is to ensure that individuals have access to quality advice.

Following the polarisation and then de-polarisation of investment advice providers between the 1980s and early 2000s, the RDR represented the first concerted attempt by regulators to ensure that consumers had access to the information necessary to make informed investment decisions and to be able to trust the individuals and institutions advising them on those decisions.

The FCA’s new consumer duty seeks to go further on this journey, by requiring companies to act to deliver good outcomes for retail customers.

However, it has been said that the RDR resulted in an “advice gap” in the UK: that the regulatory perimeter around investment advice was uncertain, and that regulatory requirements around the provision of investment advice made its provision unviable in some settings.

The FCA has now released proposals to address some of these issues. Coming 10 years on from the RDR, the regulator is now planning to introduce a “streamlined” regime for the provision of “core investment advice”.

If introduced as consulted upon, this new regime will allow companies to provide mass-market consumers with straightforward financial needs greater access to simplified advice on investing into mainstream products, specifically within stocks and shares Isas.

The proposals have the potential to facilitate another major, structural adjustment to the retail investment market. Clearly, with the RDR, the story is far from over.

Background to the RDR

The RDR was announced by the Financial Services Authority – the FCA’s predecessor – in 2006. The purpose of the review was to identify areas of consumer risk in the retail investment market and to implement changes designed to mitigate these risks and to improve standards for consumers when dealing with retail financial services products.