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Retail Distribution Review - November 2008 Update

This online article is the latest in our series of updates on the Retail Distribution Review (RDR).

Introduction

The aim of this update is to to give you a summary of the 220 pages of the November 2008 FSA “final feedback” paper as well as our own views on the key issues it covers. We’ve deliberately taken our time to produce this article as it would be unwise to hastily publish something on such a fundamental paper for the industry. To help you be clear on what the paper said and what is simply our opinion, our views are confined to the ‘Scottish Life’s view’ boxes and the ‘Conclusion’ section.

This RDR update is split into four sections:

One thing that may have been lost in all the debates around “long-stops”, “CAR” and “Primary Financial Planners” is what the RDR is trying to achieve. We thought it would be useful to start off with this before looking at the detail of the paper.

The RDR Aims

The RDR began at the end of 2006 after Sir Callum McCarthy’s speech at Gleneagles. Some of his more contentious comments were:

“... we have a system which serves neither the producer of the services nor the consumer of the services. It is doubtful whether it serves the intermediary either.” 1

“The present distribution system is distinguished by a focus on business volume rather than quality.” 1

“... there is clearly a lot of activity in the pensions market, it is not clear how much is motivated by the customer's best interests.” 1

“[The present remuneration model] suffers from product bias, provider bias and churn.” 1

The aims of the RDR were summarised in the Interim Feedback Paper issued by the FSA in April 2008:

  • an industry that engages with consumers in a way that delivers more clarity for them on products and services
  • a market which allows more consumers to have their needs and wants addressed
  • standards of professionalism that inspire consumer confidence and build trust
  • remuneration arrangements that allow competitive forces to work in favour of consumers
  • an industry where firms are sufficiently viable to deliver on their longer term commitments and where they treat their customers fairly
  • a regulatory framework that can support delivery of all of these aspirations and which does not inhibit future innovation where this benefits consumers

Jargon Decoder

To help with some of the content that follows, here is a quick jargon-buster:

  • ABI – Association of British Insurers
  • AC – Adviser Charging
  • AIFA – Association of Independent Financial Advisers
  • BBA – British Bankers’ Association
  • CAR – Customer Agreed Remuneration

next: The distribution landscape

Sources:

  1. Is the present business model bust?
    Speech by Callum McCarthy, Chairman, FSA
    Gleneagles Savings & Pensions Industry Leaders' Summit
    16 September 2006

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