As we bid a fond farewell to a memorable year of Royal Weddings, Jubilee celebrations and outstanding Olympic achievements, the start of 2013 sees the dawn of a new era and a revolution within the financial services industry. Starting on 1st January 2013 a new approach to financial advice begins, known as the Retail Distribution Review, or RDR:
What are these changes?
There are three main changes that you need to be aware of:
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- How you will pay for your advice
- Understanding what type of advice you are receiving
- Raising the standards of the advice you are being offered
And how do all these changes affect me?
A New Way to Pay
Financial Advice that you may have received in the past wouldn’t have been free, your advisor would have would have probably been paid a percentage of the sum that you invested (a commission) from the provider of your investment. From 1st January your financial advisor will need to be clear about the cost of advice and together you will establish how you will pay for it.
This supports you by:
- Allowing you to understand what exactly you will be paying for
- Safe in the knowledge that the advice you have been offered hasn’t been influenced by what your advisor could potentially earn.
Deciding What Advice Can Be Offered
Investing your money can be a daunting and confusing step. From 1st January Financial Advisors will either be able to advise you on all products that maybe right for your investment or focus on a specific range within a specialist area, such as pensions, or work with selected partners. These two areas are referred to as:
- Independent Financial Advice:Advice covering all products and all firms
- Restricted Financial Advice: Advice focusing on specific products and provider
This supports you by:
- When you see an advisor they will have to explain exactly what they can advise on
- You will gain a clear understanding of products you are investing in
Gaining Advice from a Qualified Professional Advisor
Currently Financial Advisors are required to hold a minimum qualification called Qualifications & Credit Framework (QCF). From 1st January every Financial Advisor will have to meet specific requirements determined by the Retail Distribution Review and increase their current qualifications to a higher level, which is the equivalent to a first year University Degree. It is also mandatory that they accrue 35 hours per year through additional study and they sign up to the Financial Conduct Authority (FCA) code of ethics, also know as Treating Customers Fairly (TCF).
This supports you by:
- Ensuring you that their financial knowledge is up to date
- All advice offered to you is current and relevant
- Having access, should it be required, to their Statement of Personal Standing (SPS) prior to advice being offered
Why have these changes been introduced?
The Retail Distribution Review (RDR) was launched by the Financial Conduct Authority (FCA) in June 2006 to tackle persistent problems and low levels of consumer trust in the retail investment market. In March 2010 final rules and guidance were published by the FCA and further guidance was distributed across the financial industry in March 2012, with the hope of boosting participation within the retail investment market.
Who is the Financial Conduct Authority?
The FCA (Financial Conduct Authority) is an independent non-governmental body that regulates the financial services industry in the UK. The FCA was set up by government and they regulate most financial services markets, exchanges and firms. The Regulator sets standards that must be met and can take action against firms if they fail to meet the required standards.
What should I do now?
If you have an advisor, or you think you might need one in the near future these changes within the financial industry will affect you and you may need to seek further advice. Financial Advisors have been aware of these changes for sometime, therefore they should be able to explain how these pending changes will affect you and your finances. You will also need to establish if they will be offering independent or restricted advice.
