The New Rules for Financial Advice: It’s Time to Challenge Your Adviser... [INFOGRAPHIC]
How to check your financial adviser is truly independent and if they have given you the appropriate investment or pension planning advice.
What are these radical new rules?
The Retail Distribution Review is new legislation from the FCA governing financial advisers and which came into force on 31 December 2012.
Under these new rules, advisers cannot receive commission from product providers and some have had to get higher qualifications.
This will improve transparency over the cost of financial advice for consumers, and - it is hoped - will ensure financial advisers serve consumers’ interests better.
How do these regulations affect me?
Advisers must now inform clients whether they are providing advice on an 'independent' or 'restricted' basis. This declaration must be provided to clients in writing in good time before they provide advice, such as retirement planning services.
What can the different types of advisers do?
Restricted advisers will only be able to offer retirement planning advice based on a smaller list of products or providers, sometimes from just a single source. Some of the biggest and most well-known firms, such as Barclays Wealth, Coutts and St James’s Place, are working under the restricted model. This means they can’t search the full range of products, and ultimately offer the most suitable advice to investors. Its a bit like shopping in Sainsburys and being told you can only choose from the first 3 aisles!
80% of the biggest advice firms are using the restricted model post-Retail Distribution Review
Independent financial advisers will be required to consider all available solutions in the pension planning market, based on the client’s individual needs, when recommending a pension fund investment.
How do I pay for this advice?
When giving investment advice, such as pension planning, advisers can now only receive payment from clients for the personal recommendations they make.
We believe charging a fee is the fairest and most transparent way to deliver advice to our clients.
Some firms are still using confusing charging structures, without the option of the client paying a direct fee, for advice that doesn’t even analyse the whole market. St James’s Place, for example, has repackaged the commission its sales representatives previously earned as an ‘adviser fee’.
Out of the initial charge of 4.5% on investment bonds and 5% on an investment fund, the salesperson receives 3%.
Ongoing annual charges range from 2.1% to 2.3%, with 0.50% going to the adviser.
Source Money Marketing
61% of advisers have said they will use a mixture of a percentage charge on assets under advice, a fixed fee and an hourly fee
While this is a new regime, some of the more respected advisers were already operating under a fee basis, well before the changes were implemented.
Capital Asset Management has not had to change its charging structure or the way it delivers advice as it was already operating in a way that was fair and transparent with its clients’ best interests its primary concern.
FCA quote: “We want firms to have charging structures that are product neutral, with firms focusing on the level of service they provide and the outcomes for the consumer.”
Source: Pinsent Masons
It’s time to review your investments
Under the old regime, some savers may have had unsuitable pension fund investments recommended to them so advisers could maximise the commission they received.
Ensure you speak to a respected, independent wealth manager who understands all your retirement planning needs.
In 2008 the FSA found that, out of 500 cases, 16% of investors had received unsuitable pension advice
Your action list
- Check your adviser has confirmed in writing whether they are independent or restricted
- Ensure you are clear on how you are paying for advice - and consider whether up front fees of 5% of your investment represent value for money
- Speak to a respected wealth manager to ensure any previous advice was appropriate.