The document summarizes key aspects of the Retail Distribution Review (RDR) in the UK financial services industry. It discusses the need for regulation due to past mis-selling issues that eroded consumer trust. Major changes coming into force in 2012 include separating advice charges from product charges and requiring advisers to have qualifications. This aims to improve standards, transparency around fees and perceptions of independence, but may also reduce access to advice or lead some advisers to leave the market. Educating consumers on the changes will be important to rebuilding trust in the industry.

1. Keeping you connected to today’s UK financial services market
Welcome to the third edition of
viewpoint, Harris Interactive’s
UK financial services newsletter.
In this edition we take a look at the
Retail Distribution Review focusing on
the need for regulation, the changes
coming into force and the implications
and challenges being faced by the
industry.
We hope you find this newsletter
informative and useful. If you wish to
find out more about the work we do
within the financial services industry
please get in touch.
Frances Green: Financial Services
Director
Peter Shreeve: Senior Consultant
Financial Services
Research
In 2006 the FSA announced it was
to review how financial advice is
sought and paid for - since then it
has become somewhat of a ‘hot
topic’ within the industry.
The need for regulation
Historically, when focusing on
investments and advice, some
within the industry have treated
customers quite poorly.
Consumers have suffered from the
mis-selling of personal pensions,
endowment mortgages, high
income bonds as well as the
collapse of both Equitable Life and
Barings Bank amongst others. With
little or no protection from the
government, consumers have been
left to their own devices and have
had to pick themselves up, dust
themselves down and start again.
We cannot therefore be surprised
that when consumers seek
professional advice today, they
have a number of concerns that
primarily focus on the safety and
security of their investments,
adviser self interest (commission
levels) as well as the return they
can expect to receive.
Retail Distribution Review (RDR)
For more information on our financial services research practice visit:| www.harrisinteractive.co.uk PAGE 1
ISSUE 3 - October 2010
viewpoint
The RDR &
the need for
regulation
Pages 1-2
Safety and security of investment
No concerns
Advice, adviser to be independent
Knowledge, qualifications of adviser
Being advised correctly (best correct, right advice)
State of economy / financial institutions
Honesty, trustworthiness of advisers
Interest rate
Return on investment
Advice / product tailored to meet needs
Adviser self interest (commission payments)
17
4
5
5
5
7
7
8
10
10
20
15
2
1
7
1
2
16
7
3
10
17
Bank, Building Society User
IFA User
% of respondents
403020100
Source: Harris Poll Omnibus, August 2010, Main source
of advice (IFA – 235, Bank or Building society -288)
Challenges
ahead &
join our RDR
Syndicate
Page 5
Q. When seeking professional advice for savings, investments and pension
products what concerns, if any, do you/would you have?
Continued on page 2...
Separation
of advice
charges
Page 3
Changes
coming into
force
Page 2
Improving
standards of
advisers and
services
Page 4

2. Issue 3 | October 2010
For more information on our financial services research practice visit: www.harrisinteractive.co.uk | PAGE 2
viewpoint
How much do you trust the advice given by...
Some Alot A great deal
Doctors (GPs)
Nurses
Solicitors
Chartered Accountants
Tradesman (e.g.mechanic, electrician)
IFAs
Bank/building society advisers
Estate agents
Source: Harris Poll Omnibus, August 2010, All respondents n=1980
% of respondents
25
88
902738
26 44 18
35 27
291226
5521241
5641438
5721045
6061638
708
100806040200
Consumer concerns have been
perpetuated by the sector’s previous
‘indiscretions’ which have eroded
consumer trust and confidence
within the sector.
Given recent history and the range
of concerns held, it is not surprising
that only 56% of the UK population
have some trust in the advice given
by IFAs, bringing them above only
bank/building society advisers and
estate agents.
Currently, financial advice is
generally paid for on a commission
basis. Additionally, fees and product
charges have a tendency to be
bundled together and lack
transparency. Hence, consumers are
unlikely to know what they are
paying, nor attach any intrinsic value
to the advice they are given.
Concerns were also raised regarding
the impartiality of financial advisers
when recommending products.
It is clear something had to be done
to restore faith in the advice being
received and the industry as a
whole.
Continued from page 1...
Changes coming into force
The 2006 FSA review highlighted a
number of issues that impact on the
perceived quality of advice and upon
actual purchase outcomes, which
they feel has led to falling levels of
trust and confidence within the UK
investment market.
There was a perception that some
advisers may be biased towards
products or providers that offered
higher levels of commission.
Consequently, consumers were
being sold products which may not
fully meet their needs.
The review has led the FSA to make
regulatory changes to address the
‘root cause’ of these problems and
to re-enforce and build upon their
notion of treating customers fairly to
restore trust.
Coming into effect at the end of
2012, these changes will impact all
regulated organisations involved in
producing or distributing retail
investment products and services,
from banks to building societies,
insurers to wealth managers and
financial advisers.
However, re-building trust in the
investment market is not an easy
feat, considering the general
negativity the financial services
industry as a whole has
experienced over the past 18
months.
Whilst the benefits and end goal
from the reforms is clear, there is a
mountain to climb in terms of both
awareness and education amongst
consumers. A number of studies
conducted by Harris Interactive have
shown a lack of awareness amongst
even the most sophisticated of
investors regarding how much they
currently pay for advice and a total
lack of understanding of the
different parties involved and their
role.
Improving the
clarity with
which advisers
describe their
services
Separation of
product and
prefessional
advice charges
Improving professional
standards of advisers

3. Issue 3 | October 2010
For more information on our financial services research practice visit: www.harrisinteractive.co.uk | PAGE 3
Separation of product and
professional advice charges
To tackle head on the perception
that the commission based structure
has led to biased and inappropriate
advice, the FSA propose removing
commission and replacing this with a
charging structure of up-front fees.
At first glance this does appear to be
a major step forward, providing
greater transparency with a fairer
model whilst helping to instil greater
levels of trust and confidence in the
advice being given and the wider
industry.
However, proposing to disclose
actual adviser fees upfront will
require a major shift in the mind-set
of the consumer, as well as exposing
them to a level of detail to which
they are not accustomed. I am
certainly looking forward to seeing
the different approaches marketers
use to address this challenge.
A recent survey conducted by the
ABI found that an existing full
advisory service typically costs £670
and on average takes around 7 hours
40 minutes which includes all client
meetings, research and preparing
recommendations and post-sales
administration.
As a result of the current bundled
charges approach, this cost for
advice and associated time will
exceed expectations for many.
The same ABI report has also
calculated that on average
consumers with less than £257 per
month to save or £13,730 to invest
as a lump sum cannot be
economically served by full advice.
Therefore, if a much less time
consuming advisory process can not
be agreed, such as simplified advice,
many consumers will either choose
not to seek professional advice at all
or be unable to afford to. This
increases the risk of greater
mis-selling due to the lack of access
to advice, defeating one of the
major aims of the RDR.
Although in principle I support what
the FSA are doing, I am concerned
that financial advice may become a
two-tiered system, one for those
who can afford full ‘independent’
advice and one for those who
cannot. High street bank CEO’s must
be laughing all the way to their bank
as the review plays straight into their
hands.
Money Made Clear, will be an
invaluable source of help for many,
providing free impartial financial
advice for those who are aware of
the service. However it will not go
to the next stage and make a
product recommendation leaving
those most at need with nowhere to
turn.
A question I have to ask is, has
anyone taken on board what
consumers want? From our survey
less than a third of those who seek
professional advice when buying
investment products prefer to pay
an upfront fee. From focus groups I
have witnessed, whilst many
welcome the high level of
transparency the RDR brings, some
consumers have actually said they
would prefer to remain ignorant of
the system and carry on regardless.
Obviously, that would not be
treating them fairly but an
alternative solution must be found
that at the very least negates the
need for fees to be paid upfront and
does not punish them for doing so.
How would you prefer to pay when seeking professional
advice for investment products?
Company I invest with pays adviser
commission
I would prefer to pay a separate flat fee
directly to adviser
Other
I would prefer to pay an hourly fee directly
to adviser
Not sure
Source: Harris Poll Omnibus, August 2010,
Those who seek professional advice n=914
30
6
1914
31
viewpoint

4. Issue 3 | October 2010
For more information on our financial services research practice visit: www.harrisinteractive.co.uk | PAGE 4
Continued on page 5...
Thinking about the different qualifications people take to perform their role, which of the
following professions, if any, do you think are sufficiently qualified?
Doctors (GPs)
Nurses
Solicitors
Chartered accountants
Tradesman (e.g.car mechanic, electrician)
IFAs
Bank/building society advisers
Estate agents
None of these
81
72
67
50
35
21
16
9
11
0 10080604020
% of respondents
Source: Harris Poll Omnibus, August
2010, All respondents n=1980
Improving professional
standards of advisers
The introduction by the FSA of a new
entry level adviser qualification as
well as enhanced standards for
professional development and an
overarching code of ethics, will go a
long way to improve current
consumer perceptions.
Looking at the results of our own
survey, this is an area where the
industry clearly needs to build
greater levels of trust and
confidence. Only 21% of the UK
population perceive IFAs as
sufficiently qualified to perform their
role, falling some way below other
professions. Driving up professional
standards has also been welcomed
by advisers.
A recent survey conducted for the
Chartered Insurance Institute and
Personal Finance Society amongst a
range of financial advisers found 61%
agree that the RDR will lead to a
more professional financial services
market. From the same survey, a
similar proportion also think better
qualified advisers are able to deliver
a higher quality level of advice. It is
the interaction between consumers
and financial advisers which provides
an opportunity to help instil greater
financial capability and discipline,
supporting another FSA initiative.
Improving the clarity with
which advisers describe
their services
Tying in with the requirement for
transparency, post 2012 financial
advisers will also have to be clear on
the type of advice they are providing
by distinguishing between whether
the advice is independent, restricted
or tied. When asked, consumers
always state they want the advice
they receive to be independent,
something which will put many
financial institutions in a bit of a
dilemma. What type of advice
should we offer? Will consumers be
willing to pay for it?
Personally, I don’t think all
consumers will either need or be
willing to pay for ‘truly’
independent advice, as this will lead
to higher adviser fees as a result of
having to conduct more research.
Though, at the very least all
consumers will want to be able to
see how the products they are being
offered compare to the rest of the
market.
I do believe providing clarification
around the type of advice on offer
will further help to build trust as a
result of this increased transparency,
although all financial services
marketers will have to be careful not
to confuse and potentially alienate
those who are unable to pay for a
full advisory service.
viewpoint

5. Issue 3 | October 2010
For further information related to this article, such as the background data, or to suggest new topics for
inclusion please email financial@harrisinteractive.net or call +44 (0)161 615 2300
The FSA also need to ensure those
advisers who offer an independent
service are monitored in a way
which is appropriate but not
restrictive and ensures this is not
treated as a mere ‘tick box’ exercise.
The challenges ahead
So, where does all this leave
providers, financial advisers and
more importantly, consumers?
For advisers, being more transparent
with regards to their charges could
price many out of the market. The
recent Chartered Insurance Institute
and Personal Finance Society survey
estimates approx. 10% of advisers
will leave the market post RDR.
For those who do stay, they will
need to ensure they have gained
their required qualification as well as
be clear on their independent or
restricted advisory stance.
Obtaining independent advice may
be a concern for consumers now,
but who will be willing to pay for it
in the future? IFAs are more likely to
target the more affluent market
presenting an opportunity for other
financial institutions such as banks,
which have the networks in place to
be accessible to consumers.
However their advice offering will
need to be cost effective in order to
combat both consumers’
affordability and reticence to pay.
There is also a need to educate
consumers around the process of
how investment purchases work and
I believe the responsibility not only
lies in the hands of the FSA, but
providers and IFAs as well. This can
be done through the industry
coming together and communicating
with consumers to increase
awareness and understanding of the
changes and benefits the RDR
brings. This would also provide a
unique opportunity for the industry
to promote itself and improve its
reputation to help re-build trust in
the investment market.
This article was
researched and
written by
Farzana Badar,
Senior Research
Manager,
Financial Services
Research Team.
Continued from page 4...
To share the latest thoughts and
options of financial services
team, visit our pages at:
www.harrisinteractive.co.uk
Here you will find recent case
studies, visit our blog, post your
comments, download recent
reports, and access the archive
of viewpoint newsletters.
Join our RDR Investor Syndicate
Harris Interactive invites you to participate in our new Investor
Syndicate focusing on the Retail Distribution Review.
The syndicate offers a cost-effective way of regularly monitoring
investor awareness and attitudes towards the changes proposed by
the RDR, likelihood to use advice when taking out investment
products and with what level of advice. Our first wave is currently
in field.
For further details, contact:
Frances Green: fgreen@harrisinteractive.com or
Michael Worledge: mworledge@harrisinteractive.com
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