4.2.3 The Retail Distribution Review (RDR)
In 2006, the FSA launched its Retail Distribution Review (RDR) to address the persistent problems that it had observed as a result of its regulation of the retail investment markets.
The FSA had observed that there was evidence that consumers had insufficient trust in the products and services supplied in the retail investment markets.
Following research and discussions with industry practitioners, consumer organisations and other stakeholders, the FSA published a consultation paper in 2009 setting out its initial proposals for dealing with these issues.
- requiring firms to be clearer about the services they provide – this has now materialised in the four-category classification of adviser services (unrestricted, restricted, simplified and basic) we looked at in Week 2
- addressing the issue of how remuneration structures for advisers may lead to adverse outcomes for customers
- improving the professional standards of advisers.
One of the first outcomes from the Retail Distribution Review came with the announcement by the FSA in March 2010 of new rules designed to prevent advice on investment products being biased by the commissions that advisers receive for selling products.
From the start of 2013, as we saw in the previous section, financial advisers have been prohibited from receiving commissions from firms whose products they are selling. Firms have to be explicit about how much they charge for their services and can no longer conceal the cost of their advice behind the overall cost of the investment product. Consequently, the cost of the advice on products is now agreed between the consumer and the adviser, not between the adviser and the product provider.