The Financial Services Authority (FSA) is working with firms, advisers, consumer groups and industry experts to improve investment advice. Through a process known as the Retail Distribution Review (RDR), the FSA is modernising the way recommendations about investment products such as ISAs and pensions are made to investors.

These changes will ensure:

  • Advisory firms and advisers tell you how much their services cost and agree with you how much you will pay.
  • Advisers who offer you independent advice must consider all relevant options for you and do so free from any restrictions (such as working with only a select group of product providers) or bias (such as being paid by commission). This makes sure that the advice offered to you is truly independent and, if it is not, the adviser must clearly explain to you why not.
  • You will receive advice from competent, trained professionals who subscribe to a code of ethics ensuring they act with integrity and treat their customers fairly.

What changes come into effect on 31 December 2012?

From 31 December 2012, advisers (excluding those who recommend securities and derivatives) will have two choices. Either they offer totally unrestricted independent advice (Independent Financial Advisers) from across the market, or restricted advice (Restricted advisers – tied to one or more products). Where they offer restricted advice, they will have to explain to you what the nature of the restriction is.

Every adviser (including those who recommend securities and derivatives) will have to meet new consistent professional standards. An overarching code of ethics for investment advisers will be introduced, ensuring they act with integrity clients are treated fairly. The level of qualifications advisers must have has been modernised and raised, and systems are in place to improve how they keep their knowledge up to date.

The aim is to ensure that you can have greater confidence in the advice you are being given. Your adviser will be able to consider a broader range of products, or clearly state which products they can advise on. Their advice will be free from bias towards any one product provider because of how much that provider pays them in commission. In addition, you will know how much the advice is costing you, and the advice will be from an individual with a higher level of technical expertise due to the new professional standards advisers must meet.

Investment advice has never been free. The price you currently pay for advice is often hidden within the charges of the product you buy and that price is currently set by the product provider, not you, the customer. These changes are not altering how much the advice should cost, but rather enabling you to agree how much the adviser gets paid, rather than that decision being taken for you by a product provider.

The new charging system will not stop investors with modest means being able to afford financial advice. If you prefer, you will still be able to get advice without having to write a cheque. For example, you could instead agree with the adviser to have their fee taken from your investments; the difference in future is that you will agree with your adviser, in advance, how much you will pay for their advice.

The FSA is serious about the Retail Distribution Review changes being in place at the end of 2012. A recent attempt by the Treasury Select Committee, in mid-June 2011, to delay implementing the Retail Distribution Review by 12 months was immediately rebuffed by the FSA!

If you want to find out more, contact one of the team who will be happy to help.