Retail Distribution review article

What Is The Retail Distribution Review And What Does It Mean For Consumers?

The United Kingdom financial services regulator, the Financial Services Authority (FSA), launched the Retail Distribution Review (RDR) to improve clarity for consumers, improve the professional standing of advisers and reduce the potential for bias in the giving of advice. The FSA intends to implement the provisions of the RDR in full from January 1 2013.


You may have heard mention of the Financial Services Authority (FSA)’s Retail Distribution Review (RDR). If you are one of the millions of people in the United Kingdom who use a financial adviser, here we look at what RDR means for you.

RDR is not expected to apply to advice on insurance or mortgages, but it will apply when you seek the guidance of a qualified adviser on pensions or investments. RDR will apply to all pension and investment advisers regardless of whether they are a tied adviser – who can only advise on the products of a single company, such as many advisers employed by high street banks – ; or an independent adviser – who can advise on the products of all companies.


Adviser qualifications and other professionalism requirements

At present, you can expect your financial adviser to have passed a series of examinations. But concern has been raised about the standard of some of these qualifications, and under RDR financial advisers will need to pass a series of higher level examinations.

In addition, advisers will need to obtain a Statement of Professional Standing every year from an accredited body. When applying for this accreditation, advisers will need to provide evidence that they have completed sufficient ongoing training in the previous 12 months.

The FSA has become concerned that financial advisers do not have the same standing as other professionals such as lawyers and accountants. Indeed financial services is often referred to as an industry rather than a profession.

So post-RDR you can be guided by your financial adviser safe in the knowledge that they hold a high-level qualification in their subject, and that their knowledge is kept up-to-date.


Advisers describing themselves as independent

Many advisers describe themselves as Independent Financial Advisers. Under the new regime they will only be able to do this if they meet a strict new definition of independence drawn up by the FSA and provide “advice which is unbiased and unrestricted, and based on a comprehensive and fair analysis of the relevant market.”



Adviser charging

This may be the most far-reaching change under RDR for consumers. Currently, some advisers may be remunerated via a fee paid by their clients, but it is more common for their remuneration to come in the form of a commission payment from the product provider. Post-RDR, advisers will not be permitted to receive such payments from providers.

This means that consumers can expect to pay a fee to their adviser when they receive financial advice. The prospect of paying for advice may be unpalatable to some, but many consumers do not realise that they already pay for the advice under the current regime, as the commission payment is effectively deducted from their investment.

Consumers should consider that the changes in this area will mean they have the security of knowing that their adviser cannot be influenced by the level of payment they could receive from the provider by recommending a particular product. Instead your adviser’s remuneration will reflect the level of service they provide, and will be agreed between adviser and client.

Unfortunately, market research has indicated that theaverage amounts consumers are prepared to pay for financial advice are well below the amounts adviser firms will need to charge to be profitable.



The Treasury Select Committee of the UK Parliament has recommended that implementation of the new qualifications requirements is delayed by 12 months to 2014, but as of September 2011, the FSA still intends to fully introduce RDR from January 1 2013. The new regime may be difficult for some, and it is inevitable that some advisers will leave the industry as a result, but there are likely to be very real benefits for both advisers and consumers.



Retail Distribution Review


Financial Services Authority


Independent advice

Adviser charging