A&M Wealth Management | Retail Distribution Review – The New World
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Retail Distribution Review – The New World

Retail Distribution Review – The New World

In order to be able to continue to practice, all financial advisers must have obtained a certificate of professional standing that has to be renewed each year. They must undertake more structured continued professional development (CPD) and hold a CII Level 4 Diploma in Certified Financial Planning.

Perhaps the biggest change and certainly the one that has received the most media coverage is the banning of commissions to advisers for advising on and arranging investment products. In future, investment management charges, adviser fees and any associated costs will become, to use the FSA`s definition, “unbundled”. Each party will be responsible for disclosing and collecting their own fees and charges from the client. As a result it is hoped that product bias and miss selling will become a thing of the past and clients will have a clear understanding of how much they are paying for advice and services.

Advisers will no longer be able to hide their fees nor will they be able to recommend products that pay the highest levels of commission. They will also have to justify their proposed remuneration based on the advice and services that clients are being offered.

The legislation has also reclassified the status of financial advisers who will now be “restricted” or “independent”.

“Restricted” advisers may be restricted by the fact that they can only recommend products from a limited number of providers or, they may only be able to advise on certain aspects of financial planning. This raises several questions. How will this impact on their ability to assess the full needs of your clients and provide the most appropriate solutions?  If investment recommendations from a limited panel underperform in the future, how would the adviser be able to improve the investment prospects for the client? Will client portfolios be able to benefit from future product developments and changes in tax legislation?

Advisers will no longer be able to hide their fees nor will they be able to recommend products that pay the highest levels of commission. They will also have to justify their proposed remuneration based on the advice and services that clients are being offered.

“Independent” advisers are able to assess client requirements and provide a truly “holistic” approach. Products may be recommended from the whole of the market, backed up by suitable investment research. Clients are individuals and require investment solutions tailored to meet their particular needs, whilst Trustees may have to consider different strategies to minimise potential tax liabilities. Investment strategies also need to be flexible enough to adapt to future changes in circumstances and the ability to change investment strategy, remove an underperforming fund manager or manage tax liabilities can be significant factors in successful financial planning.

Should you decide that independent advice is more appropriate for your client, it is necessary to understand the advice and services that will be provided by the IFA. Some advisory firms outsource the investment process to third parties, some recommend “model portfolios” that have a “one size fits all” approach, whilst others market a “specialised fund” approach. Alternatively, the IFA may prepare portfolios to meet individual needs and recommend and retain individual investment funds purely on merit.

The decision to refer clients to “restricted” or “independent” advisers is an important one. In order to meet your duty of care and avoid any future criticism, it is important to fully understand the advice and services that your client will receive. Existing or prospective professional connections should fully explain their advice and service propositions to enable you to make informed choices.

RDR has had little impact on A&M Wealth Management Ltd as we have been providing truly independent advice since 2004. We specialise in providing bespoke investment advice tailored to the needs of the individual, supported by client review and investment monitoring services that clients can rely on. Our fee structure has always been both fair and transparent.