The Retail Distribution Review. It sounds so boring doesn’t it? It’s a bit snappier if we give it an acronym (the RDR), but nonetheless, my guess is that you don’t much care what it’s all about. For the expatriate market we can hope that it will help to influence what has historically had a poor record. With high commissions and poor advice being the order of the day.
You Should cared about it though. Why? Because the RDR is all about you. You’re the retail bit – the ordinary customrer of the financial services industry. The DR bit refers to a change in the way uou are sold financial products. And assuming it works out, that change could mean you are much less likely to be sold utterly rubbish products than in the past, something that in turn might make your retirement significantly more pleasant than it might have been.
To understand why this matters, we first need to look at how financial products have been sold until now. Most people think that financial advice is somehow free. It isn’t. when you go to a financial adviser, he gives you advice and you act on that advice. you don’t actively hand over a cheque in payment. but that doesn’t mean he doesn’t get paid. far from it – he gets paid by the product provider in commission.
Commission bias has long meant that retail clients often have not been recommended the best products for them. Instead, they’ve been offered the best payers of commission to the industry.
This is why RDR is great for the UK retail market – and by association the expatriate market. From January 2013 there will be no more commission on new sales. Advisers will continue to pocket trail for investment sold in the past, but when it comes to anything new they will have to set out their charges explicitly.
You’ll find that they don’t come cheap – no cheaper, as it happens, than other qualified professionals. A reasonable lawyer costs £150-250 an hour and so, it seems, does a reasonable financial adviser. According to The Daily Telegraph, an initial review of your finances is likely to cost around £500, and the hourly fee for subsequent advice will come in at around £150, with the low end coming in at £75 or so and the top at more like £400. That might sound like a high price, but it’s nothing compared to the long-term trail commissions you have been paying for decades.
Furthermore all adviser will now have to meet a basic standard of education in the UK. That basic level is higher than the current norm, and means there is a good chance that a relatively high percentage of new style advisers might actually know what is going on in the investment world. However, some 20% of advisers have still not passed the right exams.
He will also now be going to have to classify himself as independent or restricted. if he is independent he will be looking at the entire market to find the best products for you. if he is restricted he won’t be: instead he will just look at products offered by a limited number of providers; you probably don’t want that.
We welcome these changes taking place in the UK retail market and we expect that the international market will follow suit over the medium to long term. Critical to ask yourself is; are you being charged a fair fee, is the advice being given by a qualified individual and has your adviser looked at the whole market for you?
If you require more information on this or anything else to do with the financial services industry please don’t hesitate to get in touch with us here.