Towards the end of 2011, Financial Planners might have been excused for dreading the onset of 2012. This was not because of the economic chill sweeping Europe or because of predictions from the pundits but because the year ahead would mark the countdown to the much anticipated Retail Distribution Review on 1 January 2013.

There would be no more shying away from the facts, no more debating the merits and faults of the review, the time for planners to make final preparations had arrived.

So, thinking all the way back to 2006 and the launch of the RDR how did the RDR come about and what ultimately will be achieved?

The RDR was formally launched by Financial Services Authority then chief executive John Tiner in a speech to the FSA Retail Intermediaries Conference in Birmingham in June 2006. It was followed by an agenda- setting speech by then FSA chairman Callum McCarthy in Gleneagles, Scotland in September 2006 and the FSA published its first consultation paper in June 2007. Mr McCarthy gave delegates a frank assessment of the poor state of financial services. He told them: “My contention is that 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.”

The aim of the retail review was to address persistent problems which had contributed to a general lack of consumer trust and confidence in the retail investment market. These problems included low professional standards among some advisers, potential conflicts of interests and lack of transparency in advisers’ pay coupled with unclear disclosure of services and products offered by firms. Firms were advised to tackle their business models at the root level including qualifications, processes and technology, product design, capital and advice and distribution channels; virtually overhauling their entire way of working. There was to be no alternative and no exemptions, firms had to adhere to the FSA proposals.

• The key changes would be: Advisers would need to be qualified to QCF Level 4 or above to continue to advise clients on investment products. IFP members who are qualified as CFP^CM professionals count as qualified to QCF Level 6.
• They would need to be a member of an ‘Accredited Body’, a choice of eight professional bodies are now available including the IFP.
• The chosen Accredited Body must then issue the adviser with a Statement of Professional Standing (SPS) to show the adviser has completed all the necessary exams/ CPD/ gap-filling requirements.
• Commission on products would be banned and advisory firms would need to implement an adviser charging structure which would charge clients fees rather than commission.
• They would need to decide if they wanted to offer an independent or restricted service.

The deadline for these changes was set at 31 December 2012 so that advisers would be ready for the RDR changes by 1 January 2013.

Nick Cann, chief executive of the IFP, said: “For those not ready for RDR, and there are thousands, being ready early is important. Most people have got the hang of exams but a lot are still not looking at gap-fill. My message is: don’t leave it until the last minute. My main worry is that some businesses will not be ready to survive and flourish as they should in 2013. Changing a culture takes time and practice. It’s all very well saying you are ready but trialling the asking of fees and so on is a different matter.”

Since then there has been debate over the so-called ‘cliff-edge’ nature of this date and people have been concerned about having all the components of change ready by the date. Some MPs have tried to delay the start date to avoid problems.

In July 2011, the Treasury Select Committee suggested the deadline be delayed by one year until 1 January 2014 “in order to maintain choice and competition in the advice market.” The FSA rejected this proposal, controversially putting out an embargoed response before the report had been published. It read: “The FSA notes the report’s recommendation on timing but remains committed to implementation from January 2013. The RDR is already a long-running initiative with the first consultation paper published in June 2007.”

A later more-detailed response from the FSA released in November stood by its decision and clarified it by declaring that 91 per cent of advisers expected to be ready by the deadline.

Not even older advisers are exempt from the changes. The FSA decided that regardless of whether advisers would soon be retiring, allowing exemptions would be unfair on those who had already qualified and mean it would take a whole generation for the higher standards to be implemented. Consequently, 41 per cent of advisers aged over-55 said they were unlikely to remain as retail investment advisers.

But the future is not all negative and surveys have revealed confidence from advisers and consumers about the effects of the RDR. A survey conducted by the IFP for Financial Planning Week found two thirds of consumers said the RDR would make them more likely to seek professional advice. An adviser survey in December by Ascentric found 88 per cent of advisers were confident in the future of their businesses and another survey by Aviva found 90 per cent of advisers intended to remain in business post- RDR, dispelling fears of advisers quitting the market in droves.

Half of the respondents to the Aviva survey even said they would be increasing investment and 36 per cent said they would be hiring more advisers post-RDR. Dean Lamble, director of distribution development at Aviva, said: “The RDR is one of the biggest changes we have seen in the financial services arena for many years. The signs that intermediaries are not just meeting the challenge but also using it as an opportunity to future-proof their livelihoods is great news.”

Unfortunately, with less than a year to go, there are still RDR issues to resolve. For example, the FSA is yet to publish final guidance on platforms. Sheila Nicoll, FSA director of conduct policy, said: “We believe it is likely to be in the best interest of consumers that product providers’ payments to platforms and cash rebates from product providers to investors should be banned. But we need to analyse the impact on consumers and on firms’ business models before we propose any new rules.”

Another worry is that paying fees will deter less well-off clients and Financial Planning will become the preserve of the high net worth. So while there will never be a good time to introduce a huge sector overhaul, the FSA is determined to stick to its guns and its deadline and there is little chance of the RDR being postponed. Advisers not yet ready face a race against the clock to stay in business post-RDR.