Retail Distribution Review
Catalysing industry and regulatory change so more consumers buy what they need and more have confidence in the products they hold and in the advice they take.
We launched the Retail Distribution Review (RDR) to address the many persistent problems we had observed in what is now, over 20 years of regulation of the retail investment market. Insufficient consumer trust and confidence in the products and services supplied by the market lie at the root of what we are seeking to address. The poor standards of practice that we continue to observe in our supervision of some firms serve only to exacerbate this issue.
In launching the RDR in June 2006 we decided to go beyond simply treating the symptoms of these problems and sought to address the root causes.
The RDR is therefore one of the core strands of our retail market strategy. It complements our aims to improve consumer capability and further ensures firms deliver fair outcomes for consumers. It is essential for promoting a resilient, effective and attractive retail investment market. The RDR will modernise the industry, giving more consumers confidence and trust in the market at a time when they need more help and advice with their retirement and savings planning.
We have used the RDR to address the root causes of some long-term problems with how the market operates, and at the same time to prepare the market for the future. In doing this, we have taken a different approach than with previous policy initiatives. We spent two and a half years seeking input from a wide range of industry practitioners, consumer representatives and other stakeholders to get their views on the issues to be addressed and to identify potential solutions. We are enormously grateful to all those who have contributed considerable constructive energy to this review. They have helped us to identify and develop ideas, giving us feedback along the way to raise our awareness of the likely impact of our proposals. This means that we now have a very clear view of how the market will react and where our regulatory interventions are most needed.
In FS08/6 we published the changes that we have now decided we want for the retail investment market. There are three measures that we regard as most fundamental to delivering the market outcomes that we set out to achieve and which will materially alter and improve the interactions between consumers and the industry. These are to:
- improve the clarity for consumers of the characteristics of different service types and the distinctions between them;
- raise professional standards; and
- reduce the conflicts of interest inherent in remuneration practices and improve transparency of the cost of all advisory services.
In mid 2009 we intend to consult on implementing changes over a period running through to 31 December 2012. The changes are far-reaching and challenging. We know that there will be concerns about introducing such significant change at a time of market turmoil and uncertainty. However, given the market’s appetite for change that became increasingly evident during this review, and the progress that many have made already to move in the direction we are proposing, we believe that we are right to set out our final proposals for consultation now and give the market sufficient time to implement the changes. The RDR provides a golden opportunity to re-build the confidence and trust of consumers at a crucial time. We also believe this is a business opportunity for firms.
