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The pros and cons of the UK’s RDR model being adopted worldwide
We’re seeing versions of the UK’s Retail Distribution Review (RDR) finding their way into the international financial advisory sector progressively more, as the industry experiences a time of unprecedented change.
RDR, introduced by the then-regulator, the Financial Services Authority, is targeted at introducing more transparency and fairness to the industry. Additionally, financial advisers must now offer either ‘independent’ or ‘restricted’ advice, clarifying whether their recommendations are restricted to specific products and/or product providers.
Indeed, the Retail Distribution Review came into effect at the beginning of 2013, and is now having a significant, recognisable, and, on the whole, positive effect on the international advisory sector. Whilst originally it created somewhat of an advice gap in the UK, forcing many advisers to exit the industry due to increased costs and responsibilities, RDR has encouraged a new era of enhanced professionalism.
As such, now a number of the benefits and lessons learnt from RDR in the UK are making their way into major global markets.
Taking into account the last three years, we’ve witnessed a perpetual move away from commission-based towards fee-based business models in the majority of jurisdictions. In part, this is motivated by ever-changing client expectations on a global scale, as well as regulatory changes worldwide.
Of course, a commission system doesn’t inevitably end in conflict of interest or bias, but the onus on full transparency and disclosure on costs and charges is on the financial adviser.
Naturally, every adviser should be clear with clients on such a fundamental issue. It’s the right thing to do, and in the long run will only serve to help your business. That said, there are many so-called advisers out there who fail to show what should be a key part of their client negotiations. However, as RDR’s rules are now becoming the defacto standard across the globe, advisers are now obliged to do this.
Therefore, as jurisdictions all over the world move towards an RDR-style business model, transparency levels, client protection and industry standards have been propelled higher. Of course, this is excellent news and should be welcomed with open arms, as it will unquestionably reduce mis-selling across the board.
Indeed, deVere, which possesses an important FCA-regulated presence, aims to bring these client benefits and lessons learnt to international markets even further. By staying ahead of the game and maintaining focus on client outcomes, which are strongly influenced by costs and transparency, we believe that taking the best of RDR across the world is essential to deVere’s success in the future.
This is reiterated by Matthew Lamb, CEO of Pacific Asset Management, who says: “We are really excited to be working with the deVere Group. Right from the outset it was very clear that they wanted a solution that makes sure the cost benefits of the industrialisation or democratisation of the asset management industry are being passed on to their end clients”.
“With their huge distribution and institutional pricing power they seem to be embracing the transforming international advisory landscape. Adopting more transparent pricing models and working with Pacific Asset Management gives their clients access to an unbiased solution that blends passive and active management.”
Of course, the UK’s RDR model which is being adopted more and more across the international arena, does have unintended consequences. It creates something of an advice black hole as advisers stop or adopt ‘restricted’ practices’ due to the increased regulatory burdens.
However, this has made the cost of advice much more transparent, and helps to ensure all financial advisers are suitably qualified – which will, naturally, benefit clients and propel industry standards even higher.