What is RDR and What does it mean for our advisers?
The financial services sector is now working in the post Retail Distribution Review (RDR) era, one of the biggest overalls of financial regulation since the Financial Services Act was introduced in 1986. It was instigated with a view to improving service levels and transparency and ensuring that the interests of Financial Advisers and their clients are in line.
Adviser Charging and the end of Commission
The most visible change for many clients of Independent Financial Advisers will be the introduction of fees for initial and ongoing financial advice. Historically, advisers have relied on commission from product providers to pay at least some of the costs incurred when you consult them for advice. Regulators have taken the view this could give rise to a conflict of interest as some product providers offer high commission for the same solution. All financial Advisers will now have to outline and agree fees for their advice in advance. You will become responsible for meeting these fees and product providers will no longer be able to pay a commission in any form.
The idea is that this will make the advice process more transparent, as it should be easier for you to work out what your adviser is charging, what they are doing in return for the charge and then to be able to compare their proposition with that of other advisers.
A new definition of independence
“Independent” has always been a description which could only be used by those advisers who researched the whole financial market. Under RDR the definition of “whole of market” has expanded and will now cover areas such as ETFs, Private Equity and other more estoric asset classes.
Under the new rules, if an adviser cannot meet the new rules for independence they will be deemed to be “restricted” meaning they will use a smaller range of investments in addressing your financial requirements. In practice, of course, this may be perfectly sufficient for many clients whose financial needs are not all that complicated.
In order to provide advice, all Financial Advisers in the UK, whether they are independent or restricted, have had to achieve higher minimum standard qualifications.