Retail Distribution Review A Perspective

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Retail Distribution Review A Perspective

• Ashley Kovas, Head of Group Compliance
  (Funds)Prudential plc

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Agenda

• The identified problem
• Consumer confidence
• The advice proposals
• The competence proposals
• Other proposals
• Conclusion
• The nature of regulation

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The identified problem

• The aim of the RDR is for more consumers to have
  sufficient confidence in the market to want to
  use its products and services more often. To
  achieve this, we need an industry that acts more
  clearly in the best interests of its customers
  and treats them fairly
• - RDR Interim Review, April 2008, paragraph 1

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The identified problem

• Confidence
• Firms not acting in consumers best interests
• Firms not treating consumers fairly
• Consumers dont save enough

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Consumer confidence
Firms behave differently
Consumers save more / smarter
Confidence
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Consumer confidence

• Investments are sold and not bought
• Foregone immediacy of consumption
• The paper promise
• Risk aversion on the downside almost complete
  failure to understand and cope with risk buy
  high, sell low
• And these behaviours are deeply embedded

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The advice proposals
Advice (independent)
Money guidance
Sales
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The advice proposals

• Proportionality
• The FSA has offered no evidence that changing the
  meaning of advice will have any impact on
  consumer behaviour, let alone a material impact

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The advice proposals

• Legality
• (1) Anti-competitive effect. The FSA has not even
  referred to polarisaiton despite its relevance.
• (2) Denying existing permissions?

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The competence proposals

• Increasing the standard required for advisers
  will reduce the availability of financial advice.

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Other proposals

• Could or should we impose regulatory limitations
  on the amounts paid, as some have suggested?
  Outright caps on commission rates or fixed
  tariffs would clearly create concerns in regard
  to competition, but we recognise that some firms
  would welcome some form of regulatory
  intervention in this area
• - RDR Interim Review, April 2008, paragraph 3.20

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Other proposals

• Consumer agreed remuneration

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Conclusions

• Unproven proportionality
• Potentially unlawful
• Unlikely to achieve the desired outcome

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Conclusions

• Consumers want the impossible high returns
  without risk
• When risk arises, consumers tend to crystallise it

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Conclusions

• there are no current plans for a read-across
  of the RDR from the investment market to the
  mortgage or general insurance markets. This
  remains the case, not least in view of the
  current market conditions in the mortgage market
• - RDR Interim Review, April 2008, paragraph 2.24

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The nature of regulation

• Evidence base
• Clearer definition of problems
• Analysis before solution
• Proportionality
• Recognising the impossible realism
• Degree of intervention