The Retail Distribution Review (RDR) is a key part of the Financial Services Authority’s (FSA) consumer protection strategy. In this post we'll look at what investors need to know about The RDR.
The RDR aims to establish a resilient, effective and attractive retail investment market. This means that you’ll be able to have more confidence and trust if you do decide to seek retirement & investment planning advice from a qualified adviser.
The RDR aims to ensure that:
- consumers are offered a transparent and fair charging system for the advice they receive
- consumers are clear about the service they receive
- consumers receive advice from highly respected professionals
To achieve this, the FSA has published new rules under the RDR that require:
- advisory firms to explicitly disclose and separately charge clients for their services
- advisory firms to clearly describe their services as either independent or restricted
- individual advisers to adhere to consistent professional standards, including a code of ethics
These changes came into effect on 31st December 2012 and apply to all advisers in the retail investment market, regardless of the type of firm they work for (banks, product providers, independent financial advisers, wealth managers or stockbrokers). The new professionalism requirements under the RDR aim to improve levels of consumer confidence and generally build trust in the retail investment sector.
Since 31st December 2012, advisers have had to:
- subscribe to a code of ethics
- hold an appropriate qualification, including any qualification gap-fill
- carry out at least 35 hours of continuing professional development a year
- hold a Statement of Professional Standing (SPS) from an accredited body
These standards will be maintained and enforced by the FSA. Firms will be required to submit data to the FSA about their individual advisers. Accredited bodies will inform the FSA of any advisers who are not meeting the standards required to obtain an SPS. Advisers who do not meet these standards have not been able to make personal recommendations to retail customers since 1st January 2013.
A new standard for independent retail investment advice
The FSA has also set a new standard for independent retail investment advice. The aim is to ensure that advice is genuinely independent and advisers consider all retail investment products when making a recommendation. If a firm has claimed to be independent since 31st December 2012, it has to:
- consider a broader range of products (retail investment products)
- provide unbiased and unrestricted advice based on a comprehensive and fair analysis of the relevant market
- inform its clients before providing advice that the advice provided will be independent
Under the RDR, if a firm gives advice on products from a limited number of providers or only considers certain types of products, it has to describe itself as ‘restricted’. Firms must disclose in writing and orally – before providing advice – that they provide restricted advice and explain the nature of the restriction. Whether providing restricted or independent advice, the same suitability, professionalism and adviser charging rules apply.
The new rules on adviser charging, which came into force on 31st December 2012, has made the process of adviser remuneration more transparent so you now know exactly what you are paying for. These rules mean you can be confident that the advice you receive is not biased by commission, as the adviser’s remuneration will be agreed between you and the adviser instead of being determined by a provider.
Under the RDR, the new adviser charging rules mean that all firms that give retail investment advice – such as banks, independent financial advisers, wealth managers, stockbrokers and product providers on their own products – will have to:
- set their own charging structure
- have a charging structure based on the level of service they provide
- disclose charges to clients upfront, using some form of price list or tariff
- deliver an ongoing service when an ongoing fee is levied, unless the product is a regular payment.
I hope you've found this review of The RDR useful. As always, if you have any questions or thoughts on the points I've covered in this post, please leave a comment below or connect with us @ISACO_ on Twitter.
ISACO is a specialist in ISA and SIPP Investment and the pioneer of ‘Shadow Investment’, a simple way to grow your ISA and SIPP. Together with our clients, we have £57 million actively invested in ISAs and pensions*.
Our personal investment service allows you to look over our shoulder and buy into exactly the same funds as we are buying. These are investment funds that we personally own and so you can be assured that they are good quality. We are proud to say that by ‘shadowing’ us, our clients have made an annual return of 12.5% per year over the last four years** versus the FTSE 100’s 7.4%.
We currently have close to 400 carefully selected clients. Most of them have over £100,000 actively invested and the majority are DIY investors such as business owners, self-employed professionals and corporate executives. We also have clients from the financial services sector such as IFAs, wealth managers and fund managers. ISACO Ltd is authorised and regulated by the Financial Services Authority (FSA). Our firm reference number is 525147.
* 15th November 2012: Internal estimation of total ISA and pension assets owned by ISACO Investment Team and ISACO premium clients.
** (31st December 2008 - 31st December 2012).
ISACO investment performance verified by Independent Executives Ltd.