The FSA Retail Distribution Review (RDR).
Download a copy of this guide (PDF, 374KB)
A fresh approach to the regulation of financial advice
The value of financial advice cannot be underestimated. Making the right decisions about your finances may never have been so important and it has certainly never been so complex. Millions of UK investors rely on their adviser for support and guidance and are their satisfied customers.
You may be aware that, from 31 December 2012, new regulations governing the provision of financial advice will be introduced which aim to provide higher standards and greater peace of mind for investors. The Financial Services Authority (FSA) has taken a look at the whole financial advice industry and, having consulted widely with trade bodies, product providers and advisers themselves, has decided to make some changes. These include raising the level of professional qualifications and removing the potential for conflicts of interest in terms of how advisers are paid. The overall aim is to improve the advice being offered and boost consumer confidence in the advice industry.
The new regulations fall into three main areas which are summarised in this guide.
1. Charging for advice
The most significant change for many people will be how they pay for financial advice. Up until these changes there have been two main ways of paying an adviser for their services:
- The provider of the product in which you invest pays the adviser a commission. The cost of advice is usually accounted for in the product charges you pay.
- You agree a fee with your adviser and pay them directly.
The FSA has sought to remove any possibility that the payment of commission could create a bias towards particular products. Therefore, from 31 December 2012, advisers will no longer receive commission payments on new business. From this date they will charge fees for their services and lay out their fee rates so clients can see the charges for advice as distinct from product charges.
What this means for you
Your adviser will describe up front the charging rates for the services being provided. You will be able to pay these fees either by making a physical payment (for example, by cheque) or by agreeing to have them deducted from your investments. A change from an adviser being paid commission to being paid by fees may not in itself make a difference to the total charges you pay for products and advice.
Barchester Green Investment clients
As part of the advisory process we will schedule an appointment with you so we can discuss your circumstances fully.
At this meeting we normally complete a ‘personal review and attitude to risk questionnaire’, discuss your ethical concerns, explain our services and discuss any charges. The initial consultation is without obligation.
2. Unifying standards for professional qualifications
All advisers today have qualifications to give professional financial advice but the changes being made aim to raise the bar higher, to promote consistently high standards across the board.
To do this, the FSA is introducing some new requirements:
- Most advisers will need to meet new, higher minimum levels of qualification.
- Advisers will need to develop their skills and knowledge over time to a higher degree.
- Advisers will need to have adhered to principles on ethical behaviour in order to be accredited each year.
What this means for you
You will have the reassurance of knowing that all advisers are highly qualified professionals, offering a high level of technical expertise.
Barchester Green Investment clients
All our advisers are already fully qualified to the new higher level standard.
3. Greater clarity on the different types of advice on offer
To help consumers choose the type of services they require, the definition of advice is being made clearer.
In future, advisers will need to declare up front whether they are offering ‘restricted’ or ‘independent’ advice.
- Restricted advisers will offer advice on a limited range of products or product providers.
- Independent advisers will consider all products from across the market when providing advice.
In practice, a restricted adviser might work with a particular type of client, for example clients with straightforward needs. An independent adviser will have no such limitations and will be able to recommend any product from any provider.
What this means for you
This will only affect you if your adviser decides to change the type of advice they offer (moving from independent to restricted advice). However, before giving any new advice, your adviser will need to clearly disclose to you what they can advise on.
Barchester Green Investment clients
Barchester Green Investment provides whole of market independent financial advice and will make a recommendation to you after we have assessed your needs.
As a result of these changes, the financial advice industry should be more open and transparent, and offer a higher level of technical expertise. You should hopefully see the benefits in the years to come.
If you would like to know more about the FSA’s Retail Distribution Review and how it will affect you, please
get in touch with your adviser.
Download a copy of this guide (PDF, 374KB)