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How Is RDR Going to Affect the Financial Services Industry?

How Is RDR Going to Affect the Financial Services Industry?

If you’ve even remotely followed the financial news or been reading about the financial services sector, you would have heard about the new overhaul of the industry. One simple change in the regulations is speculated to make a lot of financial advisory firms close down and create a gap in the advice market.

RDR, or retail distribution review is a new regulation introduced by the government that means financial advisors must now inform their clients exactly how much they’re taking in commission or fees for any transaction made through them. Previously, the advisor didn’t need to tell their clients how much they were taking and took it straight from the investment they made be it pensions, or any other investments made. Some clients were confused about the fees, and many thought financial advisors worked for free, not taking anything from their investments. RDR promises to make everything much more transparent so that advisors will need to tell clients upfront all the cost implications.

The reason why this will make some advisors bankrupt is that the clients will be shocked when they hear how much they need to “start” paying for the financial services they’re getting. It’s unclear exactly how much this small change will affect the industry, but a lot of experts speculate that clients will start to look elsewhere for cheaper more affordable advice.

In many ways, RDR is a welcome change to an otherwise unregulated industry where advisors can get away with murder. It also helps stamp out the infamous “salesman” approach that often occurs when advisors get higher commission for certain products, thus promoting them more. All in all, RDR will pave a new way for innovative ways of delivering advice. One such route is the online automated advice that promises to fill the gap created by the many financial firms closing down. As it is low cost and depending on the system, good quality, it will fill the gap between expensive but good quality advice and free but bad quality advice.

The financial services industry has always stayed clear of innovation, or incorporating technology into it’s products. This is mostly due to the culture of following the phrase “if it isn’t broke, don’t fix it”. If you look at other industries such as retail or music, you will find that their use of technology has revolutionised the way people listen to music or buy stuff. Experts think that RDR will be the spark that sees this old fashioned industry catch up with others.

RDR will be implemented by the end of the year so we will see then just how big an impact it has made on the industry.