Financial advice has changed...
On 1 January 2013, new rules from the then-cheif city regulator, Financial Services Authority (FSA) came into effect which have changed the way financial advisory companies operate. Known as the Retail Distribution Review (RDR), the objective is to raise professional standards in the industry, introduce greater clarity between the different types of service available and make the cost of advice very clear.
To help you understand what RDR might mean for you, Guardian investing - provided by Skipton Financial Services Limited (SFS) - has produced the following Frequently Asked Questions.
Q: Why did the FSA introduce RDR?
A: As the regulatory body for financial services in the UK, the FSA has taken a thorough look at the way the financial advisory industry operates and identified certain long-standing issues it believes needed to be addressed. These issues included a lack of clarity over the way investors pay to receive financial advice and regarding the service they may receive and professional standards across the industry.
Q: Where did the FSA believe some financial advisory companies lacked clarity?
A: The FSA believes there was a lack of distinction between the different types of adviser available and the costs associated with the advice they provide. Considering the complexities of investing, and potential risk to your capital, it's only right that an adviser makes it clear to you exactly what they are able to, and are not able to, advise on.
So under RDR there are only two types of financial adviser - Independent or Restricted - and all advisory companies had to decide which they become. Some firms opted to offer both services to different types of customers.
Q: What are the differences between Independent and Restricted Advisers?
A: The new labels are designed to make it clearer, from the outset, the scope of advice your adviser can offer.
An Independent Adviser will be required to research the whole market for products which might be suitable for their client's needs - and every asset class that could potentially be suitable. This includes more 'exotic' products, such as Investment Trusts, Exchange Traded Funds or Venture Capital Trusts, where these are deemed potentially suitable products.
A Restricted Adviser can consider a select range of investment products and product providers that might be suitable. The number of products and providers from which they are selected may vary significantly. For example, one Restricted Adviser could opt to select from just 20, while another could choose from several hundred.
Although the term 'Restricted' might carry certain negative connotations, many commentators believe that Restricted Advice is likely to be appropriate for the majority of people. A Restricted Adviser may specialise in certain areas, but can still research a very broad range of products and providers (even the whole market, if they wish), on your behalf, in order to offer tailored recommendations suited to your financial objectives.
Q: How has RDR raised professional standards?
A: The new RDR requirement is that all financial advisers (Independent and Restricted) are qualified to the same higher level benchmark: Chartered Insurance Institute Diploma level (or equivalent).
In order to achieve this new benchmark, many financial advisory companies devoted more time and resource to training their advisers, who typically had to sit a number of exams. Advisers must also regularly refresh their technical knowledge through ongoing training and development. The purpose of this new benchmark is to ensure consistent high standards of qualified advisers across the financial advisory industry.
Q: What about that confusion over the cost of advice?
A: Previously, there were a number of ways that you could pay for advice, including upfront hourly fees, or initial and ongoing commission paid by the firm with which you invest. Now, all financial advisory companies are required to clearly set out the charges the client will pay and agree them prior to providing any advice - to ensure clients are fully aware of the costs involved.
In addition, in order to make an ongoing charge, your adviser must provide you with an ongoing service, agreed with you upfront.
It's important to emphasise that obtaining financial advice has never been free. Although you may not have been paying your adviser directly before the new rules, it's likely that you were paying for the advice from the fees and charges within your investment. Product providers are no longer allowed to influence what an adviser charges a client, and so your adviser must agree their charge with you upfront.
Importantly, an adviser won't be able to charge you anything without first making it clear how much their services cost, so you will never have to commit to charges that you don't feel comfortable paying.
Q: Were all financial advisory companies ready for RDR?
A: The bad news for some investors is that a number of companies concluded that they would not be providing financial advice post-RDR.
Many big names on the high street dramatically cut back on face-to-face financial advisory services, or withdrew them altogether. This is particularly the case for clients with less than £100,000 invested.
If you already have a financial adviser, you might wish to consider contacting them to find out whether they are still available to manage your investments - or if you need to look elsewhere for financial advice.
Obtain no-obligation financial advice from Guardian investing
Provided by Skipton Financial Services Limited (SFS), Guardian investing is fully committed to offering you face-to-face financial advice. As a new client to SFS, an Adviser can meet with you to review your existing savings and investments, to help you determine if they are suitably positioned towards achieving your financial objectives, with no-obligation to act upon any recommendations they offer.
SFS's advice offering fits under the 'Restricted' label as they will not necessarily offer access to the entire range of possible investments. However, SFS essentially continues to pick Funds from the same range they did prior to RDR.
They have access to over 3,000 collective investment funds from over 70 different providers, in addition to products from UK life offices, structured products and structured deposits. Thanks to ongoing research by their in-house Technical team, SFS has developed an up-to-date 'Preferred Products Range' that your SFS Adviser can select products from.
As a result, you can be confident that SFS has done its homework very thoroughly and that the personalised advice they offer to you is appropriate for your needs.