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The Effects of Retail Distribution Review (RDR) on Consumers

Marlene Shalton CFP Great BritainBy Marlene Shalton, CFP

From January 2013, advisers and planners in the UK will have had to fulfil the Retail Distribution Review’s (RDR) requirements if they are to continue trading under the new rules laid down by the UK’s regulator, the Financial Services Authority (FSA).

One of the new requirements will be to decide whether you as an adviser will provide advice from the whole of the market, in which case you will be able to call yourself an “independent” adviser or planner.

Alternatively, if you do not research the whole of the market, then your advice will be “restricted”. The adviser can provide advice on a limited range of services or products.  For example, he or she may offer advice across all areas but source products from only a few providers or they may offer products from providers across the whole of the market but only advise on limited product areas, such as a pension or a mortgage.

Independent vs. Restricted Advisers

Consumers will have to be informed of the type of adviser you are; independent or restricted, from the outset of your contact with them.

In some ways this is not too dissimilar to the current regime, where advice is either “independent” or “tied”. “Tied” means that you can only offer products and services from the providers they work for; but multi-tied advisers, advise on products from a restricted range of providers.

Whether the general public is acutely aware of these distinctions is debateable, but some advisers who are tied or restricted do not always openly make this clear, so leading the prospective client into believing that the advice is “independent” and that the whole market has been more or less researched. For some, to state that they are not independent suggests rightly or wrongly that their advice is inferior and hence the reason they do not declare their proper status. For others, commission comparison may be an issue, and so the whole matter may be played down.

Will RDR Help Consumers?

So will this new definition of the types of advice that will be available form 2013, make it any clearer for the consumer? I would say that it is unlikely, since the current position has been around for many years, yet still confusion arises about “independent” and “tied”.

How will this be monitored is anybody’s answer, since an adviser can make it less obvious that he or she is “restricted”, although it must be stated in the Terms of Engagement. It is well known that many clients do not read these documents.

The real question for the consumer is: Whichever type of adviser/planner they choose, will they be able to rely on their advice being appropriate and in their best interest? Getting good financial advice will make a real difference to ensuring that clients achieve their goals and objectives. Sometimes, the fact that the pool of products is restricted may turn out to be just as beneficial and possibly cheaper. I would argue that it depends very much on the client’s requirements and how complex they are.

Are Independent Advisers Truly Better? 

Given that the minimum qualifications for all advisers will be the same and that they will also need to hold a certificate confirming their attainment of the necessary qualifications and CPD with a Statement of Professional Standing (SPS), a client with straightforward needs, who knows more or less what they want, would be just as better off seeking advice from a restricted adviser. Others may claim that the best advice can only come from those who are truly independent, but how will clients know this? How can they really determine at outset which is the right adviser for them?

In the UK, independent advice has been promoted for many years as being the better source. Should this still be the case from 2013 onwards?

1 comment to The Effects of Retail Distribution Review (RDR) on Consumers

  • It what advisors do with an investment product or a prudent investment process that adds value not the investment product in and of itself.

    Thus a restricted advisor is product focused not client focused as it is literally not possible to add value through a series of disjointed unrelated transactions as there is no mechanism in place to determine whether a recommendation added value or not. This later format, sometimes referred to as commission sales, is in no way preferable to an overarching investment strategy in the context of a prudent investment process formulated in the best interest of the investing public in accord with fiduciary duty.


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