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Paul Farrow: Ditch RDR tag to aid consumer awareness

When I began life as a journalist on this paper more than a decade ago covering the investment patch, I was eager to beat our rivals to any stories. Hence, many of my stories opened with the line that a company was “set to” launch a product, even if it was weeks away.

In 1999, it was all about high-yield corporate bonds and I even managed to get a scoop on Scottish Widows recruiting New York-based MacKay Shields on to the front page (well, it was only a picture story using the New York skyline).

This all changed when I joined The Sunday Telegraph in 2000.

I quickly learned consumers want to be able to act or react immediately. There was little point writing about a product they could not go out and buy the following morning. It meant I would put exclusivity aside and write about a product I may have got wind of when it had been officially launched.

This is probably why many national newspapers have only flirted with the subject of the RDR. It is also why I agree with Russell Warwick of the Pru, who writes that it is pointless embarking on a consumer awareness exercise until the immediate run-up to D-Day.

But even when the time is right to raise awareness, how this is done is another matter.

The question of who promotes the change is causing some debate and I am not the only one who is sceptical whether the FSA can do a decent job. That said, the call for a £25m TV advertising campaign akin to the British Gas Tell Sid share privatisation campaign is fanciful – it would be money down the drain.

Ask Daniel Godfrey, formerly of the Association of Investment Trust Companies, on the merits of pumping millions into a TV ad campaign. The quest to get the masses to invest in investment trusts was an error of judgement and a huge failure.

Only recently, the Financial Services Compensation Scheme embarked on a £4m TV campaign, with the help of Wallace & Gromit-inspired characters. It failed to raise awareness of savings protection limits and was dropped.

When the time arrives to announce the RDR to the public, getting them interested in how they pay for financial advice is going to be a tough ask.

I have mentioned before that part of the problem with educating the public on financial matters is how to make the subject engaging. Besides talk of stockmarkets plunging and house prices rocketing, most people sigh and hold their heads in their hands when matters financial are raised.

Trying to make pensions interesting can be a thankless task, for instance. It is why many publications use case studies rather than a bespectacled, balding actuary who actually knows his pension onions to illustrate a retirement article.

Part of the problem the industry faces is that the RDR already fails the consumer litmus test because of what it is called. Retail distribution review tells the consumer nothing.

Journalists are already trying to circumnavigate the phrase by saying “new rules on financial advice” but we have yet to come up with a snappy two or three-worder that will stop the public in their tracks.

The FSA should ditch the RDR tag and launch a competition for a new name to give any awareness campaign a chance of getting the message across. In the meantime, feel free to offer any (serious) suggestions below.

Paul Farrow is personal finance editor of the Telegraph Media Group


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There are 23 comments at the moment, we would love to hear your opinion too.

  1. There is a common trend within financial services and whether we are discussing the RDR, investment trusts, the pension or protection gaps the echoing response is the same – the greater bulk of the public does not care.

    Life today is a search for the next quick fix or one of survival. Consumers, in the main, do not want to be educated nor do they react to advertising about what is happening and/or what they should be doing.

    This harsh reality is one that most advisers can relate and we do not need and industry-funded KPMG research unit telling us this stuff.

    This reality shows why so many consumers use their bank when we all know that this is not the best conduit for financial advice. It shows why claims parasites transact business when consumers could save 30% by doing it themselves. It shows why, regardles sof the brochures and suitability letters sent, many consumers have no idea and little real interest in the products they buy.

    This is why endemic problems arise which then become categorised as mis-selling.

    If regulators were able to recognise this reality instead of attempting to foist their views of financial nirvana the world would work in a smoother, less cluttered and less adversairail manner.

  2. If the RDR were designed to improve consumer experiences, reduce their costs and generally make life better for the common man or woman, it would be very easy to “sell” the concept to the populace. The fact that that the regulator and a good many IFAs can’t easily explain the advantages would suggest the regulator has not looked at the implications of these changes in terms that can be explained to consumers. The FSA leaflet does not clearly explain anything that illustrates how much better off the client will be after RDR.

  3. RDR is about financial journalists and the handful of people who read their stuff getting retail products at wholesale prices. How you make that interesting for the public is indeed a problem. The obvious end result of all this nonsense is to get rid of independent financial advice for the vast majority of the population, so it doesn’t really matter about getting the message to them. Financial journalists will have to be regulated though because although they get paid now for giving unregulated financial advice, when they are the only people left giving advice the regulators will still have to do a bit of regulating…

  4. Really Dreadful Regulation. This was all about creating lots of high paid jobs in the City to the detriment of the vast majority of the public who will never be able to afford independant advice in the future.Created weaned and encouraged by successive governments the child of second class thinking it displays all the usual traits of the modern child. Resentful, unaccountable and bent on becoming wealthy and famous to the detriment of all who are related. Retirement cannot come too soon for me and all other small financial advisors.

  5. Jeremy Newbegin 1st June 2012 at 9:41 am

    Spot on Alan but sadly who is listening?

  6. I’m one of those that think the effect of RDR has been massively over-hyped, and when it all settles down, it will be back to business (almost) as usual.

    I’ve mentioned – briefly – the coming changes to a few clients. One phrase that has caught their attention is my comment that “commission will be banned after December”. That explicits a response such as “really? – so will I have to pay fees then?”.

    They are genuinely engaged after that opening comment of mine, but I then go onto explain that charges / fees can still be taken from the product in the old-fashioned way – and of course will only apply to new business in any event. I explain it’s more a case of transparency than anything else.

    Everyone then settles down again, but at least they were interested for a moment!

  7. Mark H (Not Hoban!) 1st June 2012 at 10:40 am

    I agree with you Alan and indeed Jeremy Newbegin @ 1 Jun 2012 9:41 am – But not just who is listening, but who cares!!

    Still, after over 30 yeras in FS I anly have to endure another 90 days!!

  8. Alan Lakey

    Financial services have failed to give decent advice to millions and we see that on a day-to-day basis non-regulation has caused many of today’s problems. You only have to look at present condition of the mortgage market to see how the de-regulating a marketplace can have drastic consequences for millions.

    Should the housing boom of 1997 to 2007 of being controlled and should advisers have been forced to give an unbiased opinion of mortgage affordability rather then coming up innovative ways of people to borrow more like self certification mortgages. In my opinion yes we should have and we may have an economic situation where people actually had spare money to save rather than having people prisoners within the present mortgage market.

    I’m sorry to say that I don’t agree with your so-called reality of unregulated markets and doing away with all of the paperwork is in my opinion it just opens the door to unscrupulous individuals to make lots of profit on the backs of others. Martin Lewis is just one example.

    I’m not saying regulation is the answer to everything but it is the case that our own industry cannot be trusted to do the right thing!

  9. Mike Ellis JRW Financial Services 1st June 2012 at 10:54 am

    It’s a no brainer – just get the Beeb to invite Martin Lewis onto their progs to promote RDR as he’ll no doubt be on garden leave by then planning on how to spend his new found millions, and be quite happy to do it for free!!

  10. IFAs who say they are happy with RDR must never offer structured products to their clients – because come RDR these products will be impossible to sell. If a client is promised 16.5% after two years if the Footsie is at or above the start level, and the counterparty is Barclays, and the risk of capital loss relating to the Footsie is a 50% soft cushion measured on the final day, then clients are quite happy for our firm to get 3.0% commission. But when the literature has to show more than 16.5% return for the clients but our commission will bring it down to 16.5% for the clients – well, we won’t be able to advise on them at all. So come RDR structured products are finished.

  11. @ Anon. 11.20.

    I agree that if an advisers fee is deducted from a structured product, then the return will be lower than if a client goes on a direct basis. And indeed, some clients might decide to do that.

    But plenty won’t for many reasons – inertia, lack of knowledge, lack of confidence, or just the feeling they would prefer a professional adviser help them choose an appropriate structured product (if it is even suitable for them at all).

    Execution-only structured products will likely increase. But a reasonable adviser charge will only reduce the potential returns a little (see the RDR-friendly products just starting to come out) and I think many clients will be satisfied to accept that in return for the protection they get from using the Advised route. It very much depends on how a firm deals with its clients, and how its proposition is set up.

  12. @ Mark Ellis – Martin Lewis is actually very negative regarding the RDR and has publicly stated thta it will reduce choice and consumer engagement.

    @Peter Herd – like a jack-in-a-box you seem poised to spring up and recount your dismal philosophy to all and sundry.

    Your explanations of historic problems are wide of the mark and far too simplistic to be taken seriously.

    I could answer your points but it’s too boring and, besides, most readers are fully aware of the issues and, indeed, more are coming to see the RDR’s potential for devastation every day.

    Bit like dropping an atomic bomb on a fully-armed and advancing hamster.

  13. @ Alan & Peter

    Well, we’ll all see who was right in 6 months time! It seems hardly worth arguing about it at this late stage…let’s just wait a little while and we shall all know who called it right and who got it wrong.

    Personally, I think IFAs will adapt, just as they always have done in the past.

  14. “IFAs will adapt as they have always done in the past.” Well, IFAs haven’t been around all that long. The regulator has had many attempts to get rid of commission. The fact that they now have to impose it on the industry shows that it was never a viable business model. On this one, IFAs will not adapt because it is an unsustainable business model. If an IFA cannot see that it is an unsustainable business model then I wonder what that person is doing as an IFA. Show me anyone who makes money now advising on any marketable products without getting a cut from the provider of the product being sold.

  15. More pearls of economic wisdom from Peter Herd !

  16. Well aid Alan.

    Over the last few months I have taken with me to each and every client meeting the 2 page FSA summary of RDR.

    I have given it to my clients and sat back and quietlyt let them read. I have been met with a despairing look from all of my clients and the request for me to explain. We I do I have been greeted with the response “OK Darren whatever you decide is best we trust will be best for us”.

    Therein rests the problem – the FSA have used the RDR to regulate what they perceive is a TRANSACTION BASED INDUSTRY. What we have is a trust and relationship based industry and you wont be able to “hard and fast” regulate that sort of industry to any great level.

    We have all outlined the unintended consequences – however the greatest of these will be that the conumer/client will switch off, hope all will be well and when it isn’t inertia will take over and people will slip backwards.

    I do hope that I am wrong.

  17. Sure, advisers adapt (not that many will remain as IFAs, of course) but, with respect, that isn’t the point.

  18. @ Ken Durkin.

    I simply don’t understand your point.

    If you wish to take your cut (paid via the provider) on any product sold, then you will be free to do so. The client signs an agreement form. You send it off with the application. Nothing could be simpler. What problems do you envisage?

    The platforms, such as Transact, have been workign this way for years.

  19. Paul asks a question. Can we think of a new name for RDR that will be communicable and grab the consumer’s attention?


    Now, if you buy an investment product, the commission payable to the sales person is disclosed before you commit.

    In future, just the same.

    If you buy an investment product, the commission payable to the sales person will be called adviser charging, and will be disclosed before you commit.

    In other words, nothing has changed. There is no story to tell.

    This whole farce has been going on since just after I retired, all of eleven years ago. It has cost a fortune, made serious money for consultants, and done two fifths of five eighths of diddly squat for the poor old consumer who has, or soon will, foot the bill.

    Satire is obsolete (ack Tom Lehrer).

  20. I can’t think of anything more likely to turn a possible client (or existing client) off than talking about the RDR. Telling them you are being forced to do something by a regulator is yawn making

    On the other hand talking to them about why you do what you do because you really love helping people achieve their goals, retire when they want to, protect their family, get enough money together, pay off debt etc and explaining what you can do for them and why they might value that (it might be called your “proposition”)

    And then explaining how you charge them for it generally results in greater interest and in them either saying “yes” or “no”. A skilled IFA should not find this difficult.

    Too much emphaisis on the negative it seems to me.

  21. Ah, but Graeme (I hope you’re well, by the way) there is one difference regarding commission disclosure and it’s an important one. Today I’d disclose the commission i get on the product I recommend, but the client will never know the commission on products I could have recommended but chose not to. The client might not know it’s even relevant, but it ought to stop products being discarded because someone else is paying more commission, or because they don’t pay the required “marketing/partnership” fee to the distributor. I agree with all your other points, but to be honest had the industry sorted itself out – including making disclosure work – the FSA might never have come up with RDR in the first place.

  22. Nick Bamford, I liked your comment. Yes it’s really not that complicated is it.

  23. Once again the industry has failed to grasp the point. The public aren’t interested !!!

    The public want:
    A) Simple products they can understand
    B) Written in plain English
    C) That can be relied on to do what they promise
    D) Sold by people they feel they can trust.

    The Industry prodces:
    A) Ever more complicated products
    B) Written in pages and pages of Jargon
    C) That do not do the job they promise
    D) Sold by people with cynical morals who are only interested in their next target so they can keep their job.

    Whoever enters the market with products that meet what the client’s actually want will clean up. Beware !!!!!

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