Welcome to 2013 and to the world of financial advice following the Retail Distribution Review (RDR).
You may have already heard about the recently implemented RDR. These are the words of The Financial Services Authority:
‘The Retail Distribution Review (RDR) is a key part of our consumer protection strategy. It is establishing a resilient, effective and attractive retail investment market that consumers can have confidence in and trust at a time when they need more help and advice than ever with their retirement and investment planning.’
One of the significant changes under the RDR is the way that advisers are paid.
In the past, advisers have been paid largely by commissions from product providers. These commissions were paid from the plan charges and the levels were determined by product providers. This meant that some providers paid higher commissions than others. Both regulators and some clients feared that this created a bias towards higher paying products.
In our case, we always sought to provide the best products for our clients regardless of commission levels, on the basis that the commission was usually enough to cover the work done. If it wasn’t, we would either charge a fee or simply absorb the cost of providing the service.
We sometimes reduced the commission levels taken in order to provide enhanced terms for our clients. Although we didn’t shout about it, this was something we frequently practiced in order to give our clients a better deal, particularly where a higher amount was being invested.
One of the changes made under the terms of the Retail Distribution Review, is that commissions will no longer apply to investment products. This means that the adviser is now responsible for determining the level of income he requires for his advice and service; and not the product provider. Effectively, commission charges have been removed and replaced by adviser fees. The net result may be assumed to be insignificant. However, we will ensure that our fee structure remains fair to everyone.
It is important to point out that commissions do still apply to protection (non-investment) plans.
For more information about the RDR, you can visit the FSA website at http://www.fsa.gov.uk/rdr
