I am sure you are all focused on the retail distribution review (RDR) but in case you missed it, its more than a little interesting and as a consumer you should take careful note of its contents for a number of reasons.

Firstly the regulator (FSA) has identified that the ‘victim’, sorry customer, looking for financial advice is faced with a range of possibilities to acquire that advice that do not suit. Interesting!

You can go to banks who just sell their products, to banks that sell lots of products, to banks that are supposedly independent, or to banks that are independent and charge you a fee. Alternatively you can avoid all that and see an independent financial adviser who charges a fee so you are guaranteed independent advice irrespective of a product. (You should be bored and confused by now but keep with it).

Naturally such confusion is just fodder for the unscrupulous and many advisers have taken advantage of this. The FSA have taken the opportunity to do a full review to see how customers can be better placed to receive appropriate advice in a way that’s less confusing. For you, the consumer, the news is excellent and much of what I have ‘harped on about’ in my columns for over ten years is covered in the report.

Under the terms, anyone who claims to be independent has to charge a fee and also cannot receive a commission. Most, if not all quality advisers will go that way.

All this takes away any bias for commissions and as such consumers can now rely on the fact that the adviser is acting in their best interests.

The article I wrote last week highlighted that many advisers use ‘extra allocation’ to hide extortionate charges. This is banned under RDR which was published two days after the column. This is a common ploy where you are believing that 105% of your money is invested when its not, and is typical of an investment bond.

The greatest benefit of RDR is the ruling that anyone who does not offer fully independent advice has to call themselves ‘restricted’. Whilst I am sure they will put a spin on this to say they have ‘restricted themselves to ensure you get the best advice’ the reality is they are offering you substandard service and advice because they are not independent.

Where does this leave us? Well consider the most oversold investment in the UK – the investment bond. As one of the largest firms of Independent financial advisers in the UK you might expect our business levels of any product to be the same as others. We do not make it into double digits in terms of the amount of sales of investment bonds yet the industry has a different view with annual premium equivalent of new sales rising every year from 2002 from £1.6bn to £4bn in 2007.(1)

With commission out of the way there is virtually no need for these highly tax inefficient and expensive products to be used at all.

It is therefore quite interesting why the FSA has extended indefinitely the disclosure regime on shorting on financial stocks. Does it know how much pressure these institutions will be under?

Such products bring in amazing revenue and have been the subject of considerable disgust for independent financial advisers who might charge a fee representing a quarter of what the new ‘restricted’ firms get in commission, they are not providing independent financial advice.

In the new regime customers make a decision at the outset if they want to use a restricted adviser (why would they do that) or seek independent financial advice.

The adviser will then have to offer crystal clear advice irrespective of the product and you can make a clear decision.

The share prices of these institutions will clearly be under pressure but those fund management groups who should be receiving the money now; due to offering more tax and charge efficient products will be looking forward to the next few years as the capital is redirected.

For advice on investment call 0845 230 9876 or e-mail info@wwfp.net

Source:

(1) Datamonitor

Matt Higham is an Independent Financial Adviser at Worldwide Financial Planning Ltd who are authorised and regulated by the Financial Services Authority.  'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'

Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made.

All information is based on our understanding of current tax practices, which are subject to change.
The value of shares and investments can go down as well as up.