Partner Article

The Retail Distribution Review: the impact

Now that the long-awaited Retail Distribution Review (RDR) has come into effect on 31 December last year, fundamentally changing the way investment advice is delivered and charged, it is clear that the shift brings with it a new set of considerations for UK consumers, along with challenges and opportunities for investment advisers. Richard Clark and Simon Patterson, of Barclays Wealth and Investment Management in Newcastle, explore how the RDR will impact the retail investment industry.

The RDR is a new and far-reaching set of rules from the FSA that has been in the pipeline for a few years and affects the ways in which financial advice on investments can be given. These rules have been implemented to ensure that there is greater transparency and clarity for investors around the cost of investment advice and to increase the professional standards of financial advisers. Essentially, the RDR has been introduced to improve the relationship and interaction between consumers and the industry and, as such, has challenged the industry to raise the bar in terms of transparency, the level of choice and the quality of service available.

Before the RDR came into effect, it is fair to say that a number of misperceptions had been widespread within the industry. In particular, up until the beginning of this year, some consumers may have thought that financial advice was free. However, whilst some financial advisers may not have charged upfront costs, those who didn’t often received commission from investment providers on either an upfront or on-going basis.

Under the RDR, commission-based sales are now banned and investors will pay a separate fee for investment advice. This transparency will give consumers the opportunity to be much more demanding about what they expect from their advisor, drive greater informed choice and ensure their needs are more closely met.

Another change brought about by the introduction of the RDR is the way in which product selection is carried out, for example “independent” or “restricted”. Those advisors operating under the “independent” classification will consider and advise on all types of investment products across the whole market. In order to focus on the most relevant investment solutions and services for investors, those houses where time and resources have already been allocated to developing and improving research facilities, will continue to provide “restricted” advice from an approved list, following extensive research and due diligence.

In addition, increasing the standards of professionalism demanded of advisers under the RDR has been a key objective for the industry. Better-prepared firms have put in place measures to ensure that the necessary training has been taken to bring advisers up to the minimum qualification requirement ie level 4. However, some advisers are currently qualified to the highest level, level 6.

Of course, another expected impact of the RDR is an increase in the number of investors who decide to manage all or part of their portfolio themselves. This trend is expected to shine a light on online execution-only platforms which will need to continue to provide a wide range of investments with the very best execution in terms of price and service as well as the tools, insight and research needed to support this new breed of Do-It-Yourself investor.

Ultimately, the RDR will raise the bar and challenge the industry to improve the quality of service, quality of advice and quality of execution for consumers. This can only be commended and we should fully support all the changes that will enhance the experience for clients. We feel that the RDR is going to drive a real flight to quality in the next few years and I think that we are well positioned for it.

This was posted in Bdaily's Members' News section by Barclays Bank PLC .