Wednesday, 20 June 2012

The RDR: where to next?

I was recently fortunate enough to be invited to a lively debate about RDR (more fully, the UK Financial Services Authority's Retail Distribution Review) outcomes with a group of lawyers from a magic circle law firm. Here is a summary of our key conclusions:

The RDR will lead to better outcomes, but for fewer people.

Those (who will be mostly the less affluent) no longer pursued by financial salesmen offering some advice in return for the prospect of a product sale, and unwilling to pay for advice, will be cast adrift by the industry.

The way that marketing is done across all sectors is gradually changing with innovations such as 'big data' and 'gamification' fundamentally changing the way businesses engage with customers. In the financial services sector, behavioural finance is having an additional impact.

Sooner or later, business models will emerge which employ these new techniques to engage the consumers cast adrift by the RDR, and even compete for those still served by IFAs. There are a number of businesses that have tried (see, for example, UK direct to consumer online financial planning tools with many other examples overseas, particularly in the US) but we are not there yet.

Some of these solutions will fall within the existing regulations, some will fall without, and some will fall uncomfortably close to the edge between. It will be interesting to see how the regulator responds to this third category.

It is likely that many of these solutions will come from outside the existing established industry, and that parts of the established industry will ultimately fall away significantly in the same way that buggy whip manufacturers largely fell away in the wake of the mass production of the automobile.