The Retail Distribution Review: A plea for ethics, professionalism and the return of confidence in financial services

The Retail Distribution Review (RDR) is now upon us. It will be fully in effect from 31st December 2012 but much of the preparatory work has been completed. It will significantly affect the way people interact with financial advisers.

It is widely acknowledged that there are many problems with the reputations of financial advisers and banks and public confidence isn’t all it could be – so it is vital that all those impacted by RDR take opportunity to recreate their reputations – and not treat RDR as a threat, or an obstacle to be got around.

It should prompt some serious self-analysis. It should trigger a root and branch reappraisal of how we treat our customers. It should continue the journey started with the Treating Customers Fairly (TCF) initiative and principles.

The Financial Services Authority (FSA) have some very specific desired outcomes from RDR. They are:

1. higher professional standards

2. greater clarity for consumers of the characteristics of the different service types and the differences between them

3. a reduction in the conflicts of interests in remuneration practices and improved transparency of the cost of advisory services.

So to what extent will these outcomes be realised? And what are the possible unintended outcomes of RDR?

Well, we don’t have a crystal ball – so time will tell. Yet there are some things we can be sure of.

Firstly, if some organisations and advisers alike don’t change some embedded habits and behaviours then the change won’t be as hoped for. After all haven’t the regulators been seeking and legislating for higher standards of professionalism and ‘transparency’ for decades? One only needs to review the regulators’ statements from the 1980s and 1990s to confirm this.

Secondly, unless advisers build stronger client relationships, and make compelling cases for the value they can add, many consumers will, understandably, see the advice charge as too expensive and stop seeking professional advice. They might either undertake DIY financial planning or become divorced from financial planning.

Underpinning advisers rebuilding of the bridges with consumers will be the ethics and professionalism demonstrated by both the advisers themselves and the companies they represent.

So what are the higher professional standards that the FSA wants to see? At the heart of the RDR is the wish for advisers to take personal responsibility for their advice. This means having a clear focus on ethics – what is right, wrong and always acting candidly and in the clients’ best interest. Acting appropriately and professionally.

Will RDR see the re-emergence of trust in our advisers? Will we see the development of a new respect for banks? Will we witness the public’s collective realisation that holistic financial advice provides a great opportunity to consult an experienced professional who demonstrates how they add great value to one’s financial affairs?

Let’s hope so. Otherwise the consequences could be the death of a once proud profession and the exclusion of even more people from much needed financial planning.