July 23, 2014

RDR Explained

The Retail Distribution Review (RDR) is coming, and it is there to benefit the investing population at large. It will boost transparency across financial services. The first point to be made about the Retail Distribution Review (RDR) is that it is good for you as a consumer. All in all, it aims to make things far more transparent in terms of how you receive investment advice and pay for investment related products through ‘execution only brokers’.

What is the RDR and what will change?

The RDR will change the way you receive investment advice from financial advisers as well increase the transparency of information concerning your investments should you use an execution only platform. The RDR has a number of key changes that want to make things as clear as possible for you, the investor:

* All financial advisers will be fully competent and trained (to higher prescribed standards), in addition to subscribing to a code of ethics that will ensure you get fair and honest treatment.
* Advisers are clear on all their associated costs and will consider all options relevant for you, rather than being restricted to investment products that they only get paid commission for.
* Investment platforms will operate with greater transparency, revealing any commission they get paid from fund managers and the FSA is considering banning rebates.
* You and your adviser will agree in advance how much you will pay for their advice.

All of this is good news for you! It means that investing will be more transparent for you, fairer and the RDR will allow you to see exactly what you are paying for. There are also new technical and ethical standards that financial advisers must adhere to, so you will be getting better technical advice as well as more honest advice generally.

How will this change the way I pay for advice?

From December 31st 2012, advisers will either have to offer totally independent advice or if they offer restricted advice, clearly explain to you what restriction they are under. Similarly execution only platforms will have to follow a similar pattern in terms of transparency.

When paying for advice, the clear rule is that you should agree in advance how much you are paying. The RDR puts you in a better position in terms of controlling what you want to pay for advice. For example, it could be possible to still pay the adviser directly for the advice, or have the adviser be paid from directly taking an agreed fee from your investments.

All in all, the RDR is good news for you

The RDR is coming for your benefit. It will produce a more transparent investment field, one where you know more about what you are paying for and exactly how much. The RDR is all about ‘cleaning up’ years of concerns and questions, and while some businesses may complain about aspects of it, you as a consumer should rest safe in the knowledge that it will be of great service to your investment interests.