Retail distribution review: ''a critical evaluation of the retail distribution review''
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Date
27/11/2017Item status
Restricted AccessEmbargo end date
31/12/2100Author
McCourt, James
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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.