Home' Life from Fifty : May 2013 Contents The Retail Distribution Review, or RDR, was a review into
the retail investment market driven by the Financial Services
Authority (FSA). It has led to new FSA rules and regulations,
which came into force on 1 January 2013 and aimed to ensure
• consumers were offered a transparent and fair charging
system for the advice they receive
• consumers are clear about the service they receive; and
• consumers receive advice from highly respected, and
better qualified, professionals.
Transparent and fair charging
A popular way to pay for financial advice has previously been
through commission paid directly to the adviser by the product
provider. This had the advantage of avoiding the client having
to pay a fee out of their capital but could make it less clear how
much the adviser had received for the advice given.
Today if you want to receive financial advice you have to agree
with your adviser in advance what they will be paid, and how.
This will be a big cultural shock to most investors.
Broome Financial we launched in 2011 with RDR in mind,
meaning we have always provided fee-based, transparent
Clear about the service you receive
The FSA has introduced new categories for ‘independent’
advice (like Broome Financial Planning), where advisers must
consider every product available in the market for every client,
and ‘restricted’ advice (like St James Place), where they can
only choose from a panel of preferred providers.
This will remove the confusion that used to exist when
everyone used to call themselves an ‘Independent Financial
Adviser’. We recommend you ask your financial adviser which
he/she is. This way you’ll know if the advice you’re receiving is
If both types of adviser charge the same fee why would you
choose to work with a restricted one?
Advice from highly respected professionals
Although there has always been a minimum qualification
standard to provide financial advice, this standard has been
increased under RDR. All financial advisers now have to hold
a Statement of Professional Standing (SPS) from a professional
body and be bound by that body’s professional and ethical code
We would recommend you ask your firm of financial
advisers/planners which qualification their firm holds.
Broome Financial holds the accredited Corporate Chartered
Financial Planning title, meaning we sit within the top 3% of
qualified financial firms in the UK.
Are you paying trail income to your old adviser?
One fundamental flaw in the RDR was its treatment of
trail, or fund based, commission. When investments were
recommended before 31st December, these on-going payments
to advisers can continue.
Trail commission – which is typically paid at the rate between
1% of the value of the investment each year – continues to be
paid under the new RDR rules until any action such as fund
switching is recommended by the adviser, or you personally
choose to stop it being paid.
This can result in some advisers having the incentive to do
nothing but sit back and earn off your investments. This is
certainly the case for most of the new clients we meet who
had no idea their previous adviser was still earning for advice
provided years, if not decades ago.
One key point to know is that there are no rules to force its
disclosure on a regular basis. This means if you have any
investments in place which were set-up by a financial adviser
before 31st December 2012, you need to do two things:
1. Check to see if the adviser is receiving any trail
commission from your investments. If they are, they
should be in a position to tell you how much.
2. Make sure you are receiving an on-going service which
represents good value in return for these payments. How
much are you being charged and what are you receiving
in return? Is there another service on offer that represents
better value for money?
As an investor you should be receiving an on-going service
for the money you pay out of investment charges each year.
Depending on the amount you pay, this on-going service might
include a comprehensive annual review report and meetings
with your financial adviser to review progress.
Depending on the type of investment policy and the provider,
it might be possible to stop your old financial adviser receiving
any future trail commission. This can be as easy as transferring
servicing rights for the policy to a new financial planner, such as
Broome Financial, which provides a comprehensive on-going
review service to every client we work with.
How much are you paying your current adviser?
With recent changes in the way consumers are charged for financial advice Broome Financial
has been asking all prospective new clients the same question – ‘How much are you paying your
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