The Retail Distribution Review is a new piece of regulation that will come into effect at the end of 2012 and will ultimately change the financial services industry. The RDR will apply to all advisers in the retail investment market, regardless of the type of firm they work for (e.g. banks, product providers, and Independent financial advisers or wealth managers). This, in turn, will have an effect on financial products and how they are designed and sold.

There are a number of changes that are due to come into force following the RDR, starting with two options, from which advisers and firms will have to choose one. These are the ‘independent’ option – offering unrestricted and unbiased advice which may include a panel approach (which is required to cover a broad range of requirements and be regularly reviewed). The other option is known as ‘restricted’ and includes offering single or multi-tied advice through simplified or basic advice regimes.

Advisers must make it clear with which regime they operate before advice is given (the ‘execution-only’ sales channel will still exist and will be the only area where no advice is offered).

Product providers will no longer be able to commission advisers for the sale of a product. The onus is now placed on the advisers to set out their own charges in agreement with their customers. Along with this, if the adviser is to charge ongoing fees they must provide a proven service for the fee.

Products written pre-RDR will not be affected by these changes and any alteration/top-ups to these products can continue on a commission basis post-RDR. Products and services must also have clear pricing models that can be evidenced to the customer in an unbundled manner.

We expect the RDR to increasing demand for outsourcing in financial services. The range of financial products on offer to the market is now so extensive that the reality is, for any firm to remain competitive and compliant, the need to outsource is becoming a must. Third parties can provide compliance and regulation support which has kept many firms in business in spite of the environment of constant change in the UK market. Outsourcers can also help providers bring new ‘RDR-friendly’ products to market much more quickly.

Here at OPAL, we’re doing just that - supporting product providers in the evolution of outsourced product design and administration technology to ensure product propositions are fit for purpose under RDR.

Providers are looking for the functionality to administer structured products, onshore/offshore bonds and maximum investment plans (MIPs), among other products, in both pre- and post-RDR environment. In order to make things simpler for financial services providers, we have put together an RDR checklist to summarise the points which will come into force:

Key RDR Check List

• Advisers are able to clearly define service they offer and fees.

• Advisers have the ability to charge fees for a service either against product or standalone.

• Advisers have the ability to clearly show difference in fee and product charges.

• Advisers have the ability to clearly show ongoing services for fees.

• Fee structures are clear and unbundled.

• Advisers are suitably qualified to provide investment advice