IT goes without saying that investment markets have been extremely volatile over the last two years and people who have seen the value of their savings and investments fall dramatically, would be forgiven for losing faith in the markets, and possibly their advisers too.
Alongside this a number of long running problems have impacted on the quality of financial advice and consumer outcomes to retail investors.
The financial services industry regulator, the Financial Services Authority (FSA), has undertaken a review which will hopefully lead to improvements in industry standards with increased clarity of service for clients, financial adviser remuneration and increased professional standards and qualifications for advisers.
The wealth management department at Dickinson Dees LLP welcomes the changes proposed by the Retail Distribution Review (RDR) which will hopefully lead to vast improvements in the standards within the financial services industry as a whole.
The Retail Distribution Review (RDR) and clarity of service to clients.
When appointing a financial adviser, there are currently three main service categories available to retail investors, tied, multi-tied and independent.
Tied and multi-tied, as their names suggest, refer to an adviser who is either restricted to advising and recommending products from a single provider (tied) or perhaps several providers (multi-tied). There are obviously limitations associated with receiving advice from either a tied or multi-tied adviser which may or may not be an issue depending on the type of advice required and the individual's own circumstances. In contrast, independent advisers are able to recommend products from the whole of the marketplace.
For example if you require protection advice, the policy which best suits your needs may be available through the tied or multi-tied adviser. However, it may be that the tied or multi-tied adviser recommends the product that is the closest match to your needs from the products he is able to.
Don't forget that there may be a policy available from another provider that would be more appropriate for you.
Following implementation of the changes proposed by the RDR it should become easier for investors to distinguish between the different forms of advice on offer to them.
The Retail Distribution Review (RDR) and adviser remuneration There are currently two main options in terms of adviser remuneration: commission-based or fee-based, although it is possible to combine the two in some instances.
Currently, an independent adviser must offer you an option to pay for any services by way of a fee rather than based on the commissions received.
For the most part, this is preferable as agreeing a fixed fee ensures the adviser is not influenced by any commissions that may be generated.
The Retail Distribution Review (RDR) and professional standards and qualifications Under current requirements, all regulated advisers must refresh their knowledge regularly to ensure that they give the best possible advice to investors.
The current entry level in terms of qualifications for individuals wishing to provide financial advice is the equivalent to the Personal Finance Society's Certificate in Financial Planning (CFP).
Under RDR the minimum benchmark for the qualifications that advisers must obtain will be increased.
It is believed that this benchmark will be equivalent to the current Diploma in Financial Planning achieved through the Personal Finance Society. This should not only improve the standard of advice within the industry, but also hopefully increase consumer confidence. Alongside this, the FSA is consulting on the creation of an independent Professional Standards Board to set and implement higher and consistent standards for the financial services industry in the areas of qualifications, ethics and continuous professional development. …