A brief Guide to “Retail Distribution Review”

The Retail Distribution Review, or RDR, is beginning to receive more media attention ahead of its implementation at the end of this year.
But what is the RDR, and what impact will it have on investors?

A new era for investment advice

The RDR is conducted by the UK’s financial services regulator, the Financial Services Authority, to investigate how the advice that is provided by the retail investment industry to its customers could be improved. In particular, the review focused on finding ways to ensure that investment advice is always fair and unbiased.

As a result of the RDR, several changes are being introduced to the way in which investment advice is provided to investors:

• Advisers will need to clearly state the type of advice that they offer their customers. For example, whether they offer independent advice and can recommend products from across the industry, or whether the advice they offer is restricted to specific areas and recommend a smaller range of products.
• Advisers, whether independent or restricted, will be required to reach a minimum level of professional qualification.
• Advisers will no longer be able to be paid by commission from fund providers and will instead be expected to agree charges with their clients upfront. The aim is to give customers greater transparency over the cost of the advice given, and inspire confidence that the advice will not be biased by commission.

Following the introduction of the RDR changes, the fees for financial advice will need to be agreed upfront by the investor and adviser. In most cases, advisers will no longer be able to claim commission from fund providers. This means that you, as an investor, may also notice changes to the charging structure of some funds and the introduction of new share classes. Your relationship with any existing financial adviser may also change as a result.

If you have a financial adviser, you should contact them if you have any questions about the changes they are making to their fees in order to accommodate the new RDR rules. Advisers will be expected to ensure that any investments they make on your behalf after 31 December 2012 are compliant with these new rules.