Over the last three years, there has been a steady move away from commission-based towards fee-based business models in most jurisdictions
Nigel Green
Versions of the UK’s Retail Distribution Review (RDR) are increasingly finding their way into the international financial advisory sector.
The Retail Distribution Review, or RDR, a set of rules introduced by the Financial Services Authority, the UK’s then-regulator, is aimed at introducing more transparency and fairness in the industry. In addition, financial advisers now have to offer either ‘independent’ or ‘restricted’ advice, thereby making clear whether their recommendations are restricted to certain products and/or product providers.
The UK’s Retail Distribution Review, which came into effect at the beginning of 2013, is now having an important, recognisable and generally positive impact on the international advisory sector.
Whilst the UK RDR did create an advice gap in the UK, with many advisers exiting the industry due to higher costs and responsibilities, it also ushered in a new era of greater professionalism. Many of the client benefits and lessons learnt from the UK RDR are now finding their way into the major international markets.
Over the last three years, for instance, there has been a steady move away from commission-based towards fee-based business models in most jurisdictions. This is partly driven by evolving client expectations globally and partly due to regulatory changes across the world.
A commission system does not necessarily lead to a conflict of interest or a bias, but the onus to be fully transparent and offer full disclosure on costs and charges is on the adviser.
Of course, all advisers should be upfront with clients on this key issue anyway — purely as it is the right thing to do and because it does, in fact help your business in the long term. Yet sadly, too many so-called advisers did not exhibit what one would think would be a fundamental part of their client dealings.
But with RDR’s rules becoming the de facto standard globally, they are now compelled to do this. And this is a good thing, of course.
With jurisdictions around the world moving towards an RDR-style model, levels of transparency, client protection and industry standards have been further driven up across the international space. This will, undoubtedly, reduce mis-selling across the board and is, therefore, wholeheartedly welcomed.
The UK’s RDR model, versions of which are now increasingly being adopted internationally, has unintended consequences, such as creating an advice black hole as advisers quit or adopt ‘restricted’ practices due to the increased perceived regulatory burdens.
However, it has made the cost of advice more transparent and helps ensure that all advisers are appropriately qualified – measures that will undoubtedly benefit the client and drive industry standards even higher.
Nigel Green is the founder and chief executive of deVere Group