Much press has been written lately with the headline, Retail Distribution Review, or RDR, but just what does it mean?.
Well some time ago now, our regulator, the Financial Services Authority (FSA), felt there was a need to do more to protect consumers. There have been a number of “financial scandals” reported by Britain’s media and a huge rise in the claims culture across the UK. So, as the name suggests, the FSA decided to review how products and services were distributed to retail clients (that’s you and I, rather than big institutional investors), and as a result created a new set of guidelines and rules to which everyone who is regulated and authorised by them must abide.
So what does this really mean for us all? Part of the new rules meant that our consultants have had to achieve higher qualifications; in fact many of our consultants had already achieved the Diploma qualification and indeed exceeded that requirement, which means we are confident that our consultants have the right skills and knowledge to deal with all types of advice needs, including the most complex scenarios. This has been a very positive step for the industry as a whole and has driven out of the industry those not able to achieve the required level of qualification.
The FSA also believed that clients were in some instances sold products that generated the highest commission to the adviser or the firm, rather than the most suitable product. Whilst there is some evidence that this has occurred in our industry, we do not believe it was a widespread practice. The alternative solution, which comes into force at the end of December, is a removal of the majority of products upon which commission was available, to be replaced with a requirement for an explicit fee to be paid. Whilst it is true that this will remove any bias that may have occurred in the industry, the cost of advice and services have not fundamentally changed and these costs still need to be met.
With the removal of commission, came the requirement to put in place a formal agreement (contract) between ourselves and our clients on the charges we will make for our advice and services. We will be introducing all our clients to our new Fees and Services agreements at your next review, or where you request additional advice before your next review.
And lastly, the FSA has changed the way in which firms describe themselves. The FSA has introduced a requirement that all firms who wish to use the term “Independent” must research all types of investments including highly complex and risky investment structures. We do not believe that these highly complex and risky investments are suitable for the vast majority of our clients. As a result of choosing not to advise on these risky products, we will now be known as a “restricted advisory firm”.
It is important to understand that we will still actively research the whole of the market when recommending suitable products to our clients – as we do now. We do not believe that this choice will affect in any way the range and depth of advice that we currently offer our clients.
If you have any questions about these changes, then please do not hesitate to contact us.