Why Should I Care About Retail Distribution Review?
Retail Distribution Review (RDR) looks to kill three birds with one stone for consumers, financial advisers, and insurance providers.
Published: Monday, February 6th 2017
Retail Distribution Review or 'RDR' is a relatively unknown phenomenon, even though it has been in existence since 2014.
What Is Retail Distribution Review?
RDR is a set of rules that aims to introduce more transparency and fairness within the investment industry. The 'standardisation' will ensure that financial products are distributed in ways that support the delivery of Treating Customers Fairly (TCF) outcomes.
The Financial Services Board introduced the Retail Distribution Review to regulate financial advisers. RDR also hopes, however, to provide stability for consumers and insurance providers.
5 Objectives Of Retail Distribution Review
- Delivery of suitable products and fair access to suitable advice.
- Enable customers to understand and compare the nature, value, and cost of advice and other services.
- Facilitate enhanced intermediary professionalism to build consumer confidence and trust.
- Enable customers and distributors to benefit from fair competition for quality advice and services at prices that are more closely aligned with the service provided.
- Sustainable business model for financial advice.
The Current Distribution Landscape For Financial Advice
Before introducing RDR, there were risks to fair customer outcomes, intermediary sustainability, and effective financial advice supervision.
1. Risks To Customer Outcomes
- Inherent conflicts of interest in commission and fees from the product provider.
- Accountability of quality of advice and customer outcomes not always clear.
2. Risks To Intermediary Services
- Financial advisers not always properly remunerated for their services.
- The value of financial adviser's service not always properly recognised.
- Upfront commission is not a sustainable business model.
- Inappropriate incentive structures expose intermediaries to regulatory risk.
3. Risks To Effective Supervision
- Imbalances in product supplier and intermediary responsibilities.
What Do We Expect From Financial Advisers?
- Clearer disclosure around nature, scope, and cost of services.
- Review of business models – “back to basics” in terms of core advice role.
- Opportunities for sustainability by demonstrating expertise and value-adding
advice and service.
- Provide on-going advice and service if receiving on-going client fees.
- Aligning your remuneration model with client interests and moving away from
conflicted remuneration models.
- Providing information to product providers to enable monitoring of TCF outcomes.
In Simple Terms, Why Should Customers Care About RDR?
RDR will provide a platform for consumers, financial advisers, and insurance providers that is fair, balanced, and has clarity in expectations and expected professional good practice.