Finance: The FSA's new rules are working

The new chief regulator on the Retail Distribution Review
April 24, 2013
"In the last 10 years consumers have become more aware than ever that they need financial services delivered by people they can trust" © Richard Baker/IN Pictures/Corbis

When you start a new job, you can’t always control what you inherit. I joined the Financial Services Authority (FSA) just as the most wide-ranging policy initiative it had ever undertaken, the Retail Distribution Review (RDR), was about to come into force.

This policy had been widely discussed in the media by politicians and by the investment advice industry, to such an extent that the reason for doing it had become obscured. I learnt that, with the RDR, you need to cut through the detail and commentary and focus on its objective—consumers getting good advice, at a fair and known price, from professionals they can trust. It makes sense.

As many of you may be aware, the bulk of the RDR rules came into force at the beginning of this year and the majority of this work will be taken forward by the Financial Conduct Authority (FCA), which came into operation at the beginning of April. At this juncture, it’s timely to revisit the RDR—why we introduced it, what we are learning and where we need to go. I firmly believe that the RDR provides the FCA with another tool through which to make financial markets work well so consumers get the services they need.

It is important to look at the RDR’s genesis. The last 10 years have been a turbulent time in financial services—over this period consumers have become aware, more so than ever before, that they need financial products and services delivered by people they can trust. It’s within this context that the RDR was introduced—to bring about a more effective long-term savings and investments industry, by tackling the root causes of problems and making sure the market works for consumers.

Underpinning this was the introduction of measures that ensure the cost of advice is transparent, that what advisers do for their clients is made clearer and that advisers are better qualified. Introducing these measures has taken us six years and has encompassed widespread industry consultation, often sparking “lively debate.”

When we started there were some elements that we could not have predicted. An example, which has been very encouraging, is the way the majority of industry has taken on this change—advisers haven’t waited for the RDR rules to be implemented. Many have changed their business proposition, gained the required qualifications and gone to great lengths to understand their customers better. It’s this reaction from advisers that I consider to have been a real success—they have seen the need to change their business, rolled up their sleeves and got on with it.

Adapting and evolving to meet change within financial services is paramount. It’s these early adapters that have shown real innovation and I believe will reap the benefits of operating in this new advice market. We are seeing examples of advisers using new ways of interacting with consumers, such as Skype and internet-based consultations.

The more alarmist predictions, such as advisers leaving the market in droves due to the RDR, have not come to fruition. Our figures show that 93 per cent of advisers will stay in the market and continue to provide quality advice to a range of customers.

While we have come a long way in the last six years, the implementation and realisation of the benefits of the RDR are still to come. It’s too soon to judge how successful we have been in achieving its aims.

We will be undertaking work over the next two years to make sure advisers and firms are complying with our rules. We will be feeding our findings back to firms, and this will include comments concerning what good and poor practice looks like. Using this type of review process indicates a shift in our approach from the FSA to the FCA—we will be more transparent and forthcoming, more willing to stamp out poor practice and to encourage good practice. A review of the RDR will be carried out in 2014 to see if we have achieved what we set out to do. Again, we will be open about our findings, and if we need to make changes then we will do so, particularly if we can improve outcomes for consumers.

To keep pace with innovation within financial services the investment advice market will change and adapt. But the underlying intention of the RDR will remain the same—to ensure that consumers receive good advice, at a fair price, from professionals they can trust. It makes sense.