Retail Distribution Review – you and your money

The implementation of the Retail Distribution Review (RDR) is one of the biggest overhauls of financial regulation since the Financial Services Act of 1986. The aim is to improve service levels and transparency in financial advice and ensure the interests of financial advisers and their clients are in line. It is, in other words, all about improving the service you as a client receive.

Knowing the cost of advice

From the beginning of 2013, the Financial Services Authority (FSA), the industry regulator, intends to improve the way you receive financial advice. Financial advice has never been free but the introduction of the RDR means all advisers must make clear in advance the cost of their advice and how it will be paid for and there will no longer the option of paying commission on new investments. This transparency will enable clients to know exactly what they are paying and that any advice received is not influenced by how much commission an adviser could earn from the advice they give.

Knowing what you are paying for

Financial advisers have always been able to offer broad-ranging or more product-specific advice but, through RDR, they will have to make it clear which products they can advise you on and whether they can consider any product provider across the market or only certain ones. This is the difference between ‘independent’ and ‘restricted’ advice.  ‘Independent’ has always been a description that could only be used by those advisers who researched the whole market. Under RDR, the definition of ‘whole of market’ has expanded and will also cover some more esoteric asset classes. An ‘independent’ adviser must demonstrate they have considered all of these products in the process of addressing your financial requirements. If an adviser cannot meet the definition of independence, they will be deemed to be ‘restricted’ and will use a smaller range of investments.

Enjoying even better service

Under the new rules, the FSA now requires all financial advisers in the UK – ‘independent’ and ‘restricted’ – to achieve a higher minimum standard of qualification before they may provide advice. This means an increase in the basic level of knowledge and should naturally lead to a higher level of professionalism for the industry as a whole.

The FSA will monitor adviser firms to make sure they meet these new standards and advisers will also have to sign an agreement to treat all clients fairly.

Until the next time Paul Hoskin from Hoskin Financial Planning.