Retail distribution review: ''a critical evaluation of the retail distribution review''

Abstract

Despite the high profile nature of the interventions made by regulators after the global financial crisis, there have been few objective assessments of their success and of the orthodoxy of market failure analysis that underpins the rationale for taking action. This study addresses both literature gaps by developing a distribution landscape segment model to measure the success of an exemplar; the Retail Distribution Review (RDR). It also undertakes exploratory research to establish a basis for a diagnostic paradigm based on customer value rather than well established, but criticised, classical economic indicators. A “stock flow” based model was constructed to assess post-RDR levels of asymmetry, agency and trust. The absence of source data prompted a second exploratory phase of research into Trust as a welfare benefit, using customer focus groups and telephone surveys. An evidential basis for an alternative framework based on what consumers value, rather than how economists think is rational for them to act, was established. The model results indicated a landscape which is more complex than 2013, with competing interests transmuted rather than eradicated and information asymmetry growing rather than shrinking. The results support a view that interventions focussing on narrow “market” definitions do not reflect the complexity of human behaviour and are simply “squeezing the balloon”. The customer value research found that trust is complicated and related to several key “motivators”. These have underlying attributes which differ between socio economic groups, the financial objectives and whether customers have advisers. The conclusion reached is that an evidence based customer perspective should be at the heart of regulatory analysis, if public welfare is to be maximised. The study provides evidence of complexities and connectedness between actors and economic forces in the retail financial services landscape, cautiously supporting the literature on regulatory interventions as socio-technical assemblages. It argues that the customer value framework enriches the regulatory toolkit by forming a guard against intellectual capture and unintended consequences of shaping reality to fit a so-called perfect market model.