Key facts about RDR
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1. The purpose of the RDR is to improve consumer trust in the adviser market.
The FSA introduced the RDR to increase consumer confidence and trust in the adviser market by improving the way that retail investment products are distributed by:
- improving the clarity with which adviser firms describe their services to consumers
- addressing the potential for adviser remuneration to distort consumer outcomes
- increasing the professional standards of advisers
2. Adviser firms need to describe their advice services as independent or restricted.
An adviser is providing a client with independent advice where the personal recommendation on a retail investment product is:
- based on a comprehensive and fair analysis of the relevant market
- unbiased and unrestricted
Restricted advice is where the adviser provides a client with a personal recommendation on a retail investment product which is not independent advice.
3. Adviser charging is the new remuneration for personal recommendations provided to clients.
An adviser providing a personal recommendation to a client needs to agree up front with the client the services to be provided, the cost of these services and how the cost will be paid. The payments made by the client to the adviser firm in respect of this cost are called adviser charges.
4. Consultancy charging is the new remuneration for advice and services provided to new group pensions.
An adviser providing advice or services to an employer or employees in connection with a new group pension scheme needs to agree up front with the employer the services to be provided, the cost of these services and how the cost will be paid.
The payments made by the employees to the adviser firm in respect of this cost are called consultancy charges where the charges have been agreed between the adviser firm and employer. If the charges have been agreed between the adviser firm and employees, the adviser charging rules apply.
5. Commission can continue to be paid on non-advised individual business post RDR.
The adviser charging rules only apply where the adviser is providing the client with a personal recommendation. If the client is not receiving a personal recommendation, the adviser can continue to be paid through commission for the sale of the product.
6. Commission can continue to be paid on existing pre RDR group pension schemes.
Unlike on new group pension schemes where consultancy charging applies, an adviser firm can continue to be remunerated through commission on new entrants and contribution increases to an existing group pension scheme.
This means new entrants can join the scheme on the same terms as existing members and all members can pay additional contributions on the same terms as existing contributions where the scheme allows it.
7. Trail commission can be transferred to a new adviser.
A new adviser can agree with the client for the transfer of existing trail commission to them. The new adviser must:
- tell the client they will be requesting the transfer of commission before the agreement is made
- provide the client with an ongoing service during the period through which they receive the trail commission
- disclose details of the commission they expect to receive and the services they will provide to the client
8. Advisers need to be qualified to QCF level 4 to provide advice on retail investment products.
The minimum qualification standard for advisers providing advice on retail investment products has increased from QCF level 3 to QCF level 4.
Advisers will also need to obtain an annual statement of professional standing from a FCA approved accredited body to provide advice.
9. The changes being implemented by RDR came into effect on 31 December 2012.
Advisers had to have their qualifications and businesses ready by this date if they wanted to continue offering independent or restricted advice or a combination of both.
Last update April 2013
For professional advisers only