RESHAPING RETAIL FUND DISTRIBUTION

FIGURE 7 THE UK AND THE DUTCH MODELS

NATURE OF THE SERVICE PROVIDED

CLIENTS IN RELATION TO WHICH THE BAN IS APPLICABLE

INVESTMENT ADVICE INDEPENDENT AND NON INDEPENDENT

PORTFOLIO MANAGEMENT

OTHER INVESTMENT OR ANCILLARY SERVICES

BANNED (GRANDFATHERING CLAUSE)

RETAIL CLIENTS (LOCATED IN UK)

BANNED (NO GRANDFATHERING CLAUSE)

RETAIL CLIENTS

Source: PwC Analysis

RETAIL DISTRIBUTION REVIEW (RDR) IN THE UK

complicated products; 3) lack of demand for life and pension policies; 4) inducement schemes creating product bias; 5) lack of professionalism in the advice sector; 6) unintended barriers created by current regulations. Between the first con- sultation and the final implementation (January 2013), the FSA published 15 statements and 30 consultation papers that con- verged in RDR. In addition, RDR included a grandfathering clause. Firms may continue to receive inducements in relation to investments in retail products that retail clients made prior to December 2012 if they do make any new personal recommendations in relation to them (see figure 7).

The UK has been the first country to adopt a formal ban on inducements with RDR, which was officially implemented in January 2013 due to regulator concerns that some advisors were directing their clients to funds that could provide the largest inducements for them. RDR introduced new standards of business conduct for independent financial advisors in order to improve financial advisory services and bans inducements, principally for the independent and non-independent advice provided by financial advisors to retail clients, with the exception of execution-only and portfoliomanagement practices. However, these new regulations are the result of a complex set of con- sultations and discussion papers that have been considered or implemented since 2006 when the first RDR was drafted. At that time, the Financial Services Authority (FSA) realised that the local fund market faced several challenges: 1) low levels of financial literacy among customers; 2) poorly designed and

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