Retail Distribution Review Overview

The aim of the Retail Distribution Review (RDR) is to increase consumer confidence and trust in the retail investment advice market by modernising the industry. It builds on the FSA’s aims to improve consumer capability and to ensure firms deliver fair outcomes for consumers.

The changes being introduced are far-reaching presenting both challenges and opportunities for industry participants. The key intended outcomes of the RDR are that:

- firms improve the clarity with which they describe their services to consumers – this will enable consumers to better understand the advice service they are being offered, know upfront how much advice is costing them and how they will pay for it

- the potential for adviser remuneration to distort consumer outcomes is addressed in order to ensure providers compete for business based on the quality of their offering for the consumer

- the professional standards of investment advisers are increased – new minimum standards of qualifications and professionalism will be introduced in this regard

The new framework will come into effect at the end of 2012 and will apply to all advisers in the retail investment market, regardless of the type of firm they work for (e.g. banks, product providers, Independent Financial Advisers or wealth managers).

Key Elements

  • Market Structure

    Four different types of service will be available to clients:

    1. Independent advice (unbiased and unrestricted)

    2. Restricted advice (including single/multi tie/simplified sales process)

    3. Basic advice (provided in relation to stakeholder products)

    4. Non-advised services (including execution only)

  • Adviser Charging

    Advisers will be expected to decide their own charging structures, with providers having no involvement. This is intended to lead to:

    - Clarity over charges for adviser services

    - Clarity over product price

    - An end to commission structures

    - Charging clients an agreed amount for advice, taken as a fee upfront or deducted from the policy

  • Professional Standards

    A new minimum level of qualification for independent and restricted advisers. Professional standards relating to basic advice remain unchanged.

    - Qualification Credit Framework Level 4 or equivalent (judged to be the vocational equivalent to the first year of a bachelor's degree, equates to Level 8 under Scottish Credit and Qualifications Framework)

    - Continuing Professional Development (CPD) for maintaining competence (35 hours a year, including 21 hours structured learning)

    - applies to new and existing advisers; no grandfathering