"Early indications are that reforms of financial advice are working." This was the headline from a Financial Conduct Authority press release in 2014.
And yet here we are 10 years after the introduction of the Retail Distribution Review, bracing ourselves for the implementation of a fundamental shift of regulation in the form of a new consumer duty.
A shift that goes way beyond the ambitions of the RDR, which seemed to be producing such encouraging results back when Uptown Funk was top of the hit parade.
So what went wrong, or what did not go right enough, that caused the regulator to have such a radical rethink?
The most obvious difference is that the RDR was aimed squarely at the retail investment market, whereas the consumer duty applies right across regulated retail financial services.
The behaviours the FCA is targeting are as a result of the supervisory alarms that have been set off across the industry – from PPI to discretionary commission models in the motor finance market, to phoenixing in the claims management sector.
It is also designed to make the regulation work for any new sectors the regulator has to take on board, such as the funeral plan industry, which has most recently been included under the regulatory umbrella, or the crypto sector, which currently sits just outside the regulatory perimeter.
Therefore, although the advice sector is firmly within scope of the consumer duty, it is worth remembering the big picture; that it was not necessarily the main, or at least the only, target.
A brief history
Given the upheavals of all sorts that have taken place since the introduction of the RDR, it is worth spending a few moments on what it (and its successor the Financial Advice Market Review) was and what it hoped to achieve.
If you lived through all this bear with me – but believe it or not there are those in the industry now who were in primary school when all this first kicked off.
The thinking behind the RDR came from the Financial Services Authority, long before the FCA was even a twinkle in George Osborne’s eye.
In a speech at Gleneagles in 2006 then-FSA chairman and keen beekeeper Callum McCarthy laid down the gauntlet that the retail distribution of financial services was not fit for purpose, and if the industry did not sort itself out, the regulator would step in and fix it.
Five industry groups were set up to look at the issues, resulting in a discussion paper in 2007 that looked at the sustainability of the distribution sector, the impact of incentives, professionalism and reputation, consumer access to financial services and products, and regulatory barriers and enablers.
They came to a general agreement about a fair few things. The quality of advice and clarity of services offered to many consumers needed to improve to enhance the industry’s reputation and build consumer trust.
