Anxious independent financial advisers (IFAs) may be breathing a little easier. A Treasury Select Committee has recommended that the implementation of the Retail Distribution Review (RDR) be pushed back until January 2014. If adopted – though there’s no guarantee it will be – it would give IFAs that still aren’t up to speed a little more time to adapt to its proposals. But where does it leave you?
Scheduled originally to come into effect a year earlier, the RDR will not only require IFAs to be better qualified, but it will also stop them from earning commission on the products they sell. They will instead charge clients directly. This radical shake-up aims to end the current cosy situation whereby advisers receive commissions from the companies whose products they recommend. Unsurprisingly, many IFAs are not fans of the change – so last week politicians threw them a lifeline, ignoring protests from those IFAs who have already made the necessary changes.
But the deferral doesn’t make sense, says Simon Read in The Independent. “The industry has had long enough to plan for the changes. Delaying the new system will create confusion among consumers.” This is a pity as “financial planning has never been more important and getting the right help and advice is crucial”.
That has never been easy under the current commission system, and won’t be until the RDR takes effect. For example, customer watchdog Consumer Focus recently found that many financial advisers are busy persuading clients to switch pensions in order to pick up extra commission while they still can. Meanwhile, trail commissions – ongoing payments to IFAs that continue long after a product was bought – will continue. These payments are not always picked up by consumers and can rise sharply in the last two years of a plan regardless of whether or not the buyer has any regular contact with their IFA.
To be clear, we don’t have a problem with financial advice per se – an experienced professional can provide an excellent service. But it isn’t cheap (think £150-£200 an hour), so the cost shouldn’t be hidden in a complicated commision structure. Fees are after all one of the key factors in determining investment returns. For now, thankfully, it seems the UK regulator, the Financial Services Authority, may ignore MPs and push ahead with RDR’s original deadline. In the meantime, if you are looking for financial advice, we’d strongly suggest you seek out an IFA who has already moved to a fee-charging model and away from commission.