Retail Distribution Review – RDR

The Financial Services Authority (FSA, now the Financial Conduct Authority [FCA]) created the Retail Distribution Review (RDR) as a set of rules and regulations designed to fundamentally change the way in which financial advice operated in the UK. The RDR was put into place on December 31 2012. The ultimate goal of RDR was to ensure more transparency in the investment industry; improve services through higher qualifications; and ensure investors understood the true cost of advice and trust they were receiving unbiased information.

Financial advisers were split into two categories: independent and restricted. Independent financial advisers (IFAs) were required to have more qualifications; and they needed to consider all different kinds of investment products (for example, funds ETFs, investments trusts, pensions and so on) before rejecting them as unsuitable.

Restricted advisers had to increase their qualifications but did not have to be knowledgeable about all areas of the market; they had the freedom to choose areas of specialisation; if they lacked knowledge in one are they could call themselves IFAs.

The RDR rules stipulated that all advisers would no longer be able to receive commissions from fund companies for selling new funds to clients in 2013. There was also a new charging structure for IFAs.

After the introduction of RDR, some advisers and firms exited the industry due to the cost of the regulation and there was also a trend towards consolidation. A focus on better client outcomes produced a trend to centralised propositions, which, in turn, created breakaway firms. Advisers also move to offer a financial planning model to clients rather than selling products.